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The Supreme Court issues long-awaited clarification on the significance of the seniority principle

News | 12.03.19

Employment Law
On 28 February 2019, the Supreme Court pronounced judgment in the so-called Skanska case. The case concerned whether and the extent to which an employer is allowed to use criteria other than the employees’ seniority when downsizing in operations bound by a collective bargaining agreement.

The Supreme Court issues long-awaited clarification on the significance of the seniority principle

Introduction
In spring 2016, Skanska undertook a major downsizing. The workforce was reduced by around 100 workers in two units in the civil engineering division. Among the affected employees were three formwork carpenters and three construction equipment operators. The judgment pertains to these six employees. Many employees with shorter seniority than these six employees were not laid off.

The employees contested the dismissals and took the matter to court. The employees claimed that Skanska had not applied the principle of seniority correctly. When choosing which employees to lay off, Skanska had attached greater importance to other criteria, such as competencies and professional skill.

The District Court found that there were due grounds for dismissal of these employees and acquitted Skanska.

The employees appealed this ruling to the Court of Appeal.


The Basic Agreement’s point of departure and the Court of Appeal’s assessment
Section 8-2, first paragraph, of the Basic Agreement between the LO trade union confederation and the NHO employers’ organisation stipulates that:

“If notice of dismissal is given because of cutbacks or restructuring, the seniority principle may be departed from when there is due reason for this.

The Court of Appeal held that Skanska had not applied the principle of seniority correctly.

The Court of Appeal concluded that the seniority principle was the main rule when selecting which employees to discharge, and that there must be relatively strong reasons for departing from seniority in determining the order of layoff. The Court of Appeal also emphasised that Skanska had committed serious procedural errors in the dismissal process. The dismissals were overruled as invalid, and the employees were awarded compensation.

Skanska appealed the ruling to the Supreme Court, and judgment was handed down on 28 February 2019.


The Supreme Court’s assessment – misleading to call the seniority principle the main rule
The Supreme Court undertook a lengthy, thorough analysis of the principle of seniority.

The Supreme Court stated:

“Pursuant to section 8-2 of the LO–NHO Basic Agreement, the principle of seniority is ‘the point of departure’ (...) In other words, the assessment must start there.”

The Supreme Court also stated that:

“However, at the same time, it is clear that the employer can also base the selection on other criteria, typically: qualifications, professional skill and competencies”.

And further:

“The selection must be based on an overall assessment, where the length of the employee’s seniority and the difference in seniority on the one hand will be weighed up against the strength of the other criteria that the employer has chosen to use. The weight of the latter criteria will vary according to the enterprise’s situation and needs”.

Moreover, the Supreme Court stated that for this reason characterising the principle of workplace seniority as a “main rule”, as the employees and their intervener LO had claimed, could provide “misleading associations”.

The Supreme Court then concluded that:

“(...) The Court of Appeal has demanded more for Skanska to be able to depart from the seniority principle in section 8-2, first paragraph, of the LO–NHO Basic Agreement than the rule provides grounds for. There is, in view of the circumstances, due reason to depart from the order of seniority when selecting employees for discharge without significant differences in competencies and skills”.


The dismissals were nevertheless invalid due to procedural errors
The decision that the Court of Appeal’s assessment of the seniority principle was incorrect was nevertheless not directly decisive for the outcome of the case.

The Supreme Court agreed with the Court of Appeal that there had been serious procedural errors in Skanska’s handling of the downsizing process, rendering the dismissals invalid. 

The Supreme Court stated that there is no doubt that the employer must adhere to a well-founded, verifiable procedure as a basis for selecting which employees to discharge in connection with cutbacks.

Skanska had used secondary criteria such as creativity, independence and reputation. The Court of Appeal stated that attaching importance to less formal competencies in the downsizing was not a problem in itself, but that an assessment of these very discretionary criteria would have to be “accompanied by robust documentation”. This is especially important if the employer had not previously confronted the employee about their unsatisfactory performance.

The Supreme Court agreed with this and stated that:

"The more discretionary and subjective the criteria, the greater the need for clear documentation, in my opinion”.

Skanska could not document why these employees had been assessed as weak on these points.

Skanska’s appeal was therefore denied. The dismissals were ruled to be invalid, and the employees were also awarded compensation. The employees were thus allowed to keep their jobs.


Summary
The Supreme Court has for the first time ruled on the significance of the principle of seniority in connection with cutbacks in the workforce in accordance with the LO–NHO Basic Agreement. The judgment provides a long-awaited clarification.

The Supreme Court says that an employer must always use seniority as the point of departure in determining which employees to discharge, but that it ultimately depends on an overall assessment based on pre-defined criteria.

The Supreme Court also understands that companies choose to attach importance to criteria such as competencies and skill, stating that these kinds of criteria may be crucial for the survival of the business, or at least to strengthen its prospects.

The Supreme Court’s statement only applies to the principle of seniority in operations bound by a collective bargaining agreement. In companies not bound by a collective bargaining agreement, employers have greater freedom.

However, this judgment is an important reminder that all companies, whether they are bound by a collective bargaining agreement or not, are nevertheless bound by strict procedural rules in a downsizing process. These rules are largely defined by case law.

The employer’s assessments and weighting must always be documented and verifiable by the court and must have been undertaken on a complete, fair basis. Employers should try to avoid using largely discretionary, subjective criteria, unless they have good underlying documentation. If the employer has never confronted an employee who is being considered for dismissal with claims of inadequate performance or other negative factors during the employment relationship, it will generally be regarded as wrongful to attach importance to these kinds of subjective criteria.

If the employer is good at giving the employees ongoing feedback during the employment relationship, the employer can thereby also secure underlying documentation that can be used when applying subjective criteria if the need for cutbacks arises. This ongoing feedback must be documented, and the employees must also have been given a satisfactory opportunity to contradict the claims.