Unjustified to terminate when the stated reason was not the real reason

After 27 years in another company, an engineer was offered a new position at an agency company in connection with a two-year contract with one of its largest customers. He accepted the offer, but shortly afterwards the two-year contract was terminated, and the company had no other assignments for the employee. As a result, the company terminated him due to redundancy. However, after negotiations with the company, the termination was withdrawn, and employee was temporarily laid off instead.

Pursuant to some notes made by the company, the employee had bad references and a reputation for creating work conflicts. According to the company, this was the reason why it was unsuccessful in finding new assignments for the employee although his skills were in demand within the industry. After the expiry of the temporary layoff period, the employee was terminated by reason of redundancy.

The employee then initiated court proceedings. He wanted both the temporary layoff and termination to be considered as invalid. He argued that the second termination had actually been due to his circumstances because there was no documentation of a need to rationalize within the company. For the same reason, the temporary layoff had also not been based on company circumstances. The company disagreed and argued that the temporary layoff was justified since there had been no assignments for the employee. It claimed that the termination was justified as well with reference to the fact that the employee had not had any assignments during the entirety of the employment. The reason for termination had therefore effectively been due to the company’s circumstances as a result of redundancy.

The main question for the Norwegian Court of Appeals was therefore whether the temporary layoff and the termination were justified.

Company could not prove that reason for termination was redundancy

The Norwegian Court of Appeals found that temporary layoffs must be based on the company’s circumstances to be justified. Pursuant to the court, the company had not documented that the temporary layoff was due to redundancy. The court emphasized that the employee was the only one who had been temporarily laid off, that there had been no reduction in the number of assignments within the company and finally, that the company itself had stated that the lack of assignments was not due to its circumstances, but the employee’s reputation. Conclusively, the court therefore found that the temporary layoff had not been due to redundancy and was therefore unjustified.

As for the termination, the court then went on to consider if the reason of the termination was based on the circumstances described by the company. The court found that redundancy did not correspond to the circumstances of the case. According to the court, in line with its reasoning for the temporary layoff, the company had never discussed terminations of other employees. Instead, the company had emphasized that the employee’s reputation was the reason that he had not received any assignments. On this basis, the court found that the actual reason for termination was the employee’s circumstances, not redundancy as argued by the company. As a consequence, the termination was unjustified and invalid.

IUNO’s opinion

This judgement clearly illustrates the importance of stating the actual ground for termination. This is because the courts in Norway only can determine whether the stated ground for termination is justified. For this reason, when it later becomes clear that the company has been stating the wrong ground for termination, the courts are as a consequence unable to assess whether termination would in fact have been justified.

Stating other reasons than the real reason for termination may trigger an entitlement to compensation to the employee. Companies must therefore carefully, on a case-by-case basis, consider what the actual ground for termination is – and collect the necessary documentation. IUNO recommends that companies are very aware that the stated ground for termination may be challenged later on and that documentation requirements are high in Norway, just as the threshold for when a termination can be considered as justified.

[Gulating Court of Appeal’s judgement LG-2020-60710-2 of 31 December 2020]