Temporary layoff

Temporary layoff

1 What is temporary layoff?

Temporary layoff is applicable if the employer temporarily has a reduced labor need. Layoffs involves a temporary cessation of the employment relationship where the employee is temporarily discharged from his or her duty at work, while the company is exempted from its duty to pay wages for a specified period.

Layoffs must not be confused with suspension or leave. Suspension means that the employee has to resign temporarily and is due to conditions on the employee’s side. In case of leave, the employee may claim work-free/unemployment on specific conditions, for example during parental leave, or the parties may agree on work-free/unemployment for a period of time.

2 Justifiable reason/grounds

Layoffs are to a small extent statutory but follow from accustomed employment law. The terms for layoffs are regulated in a number of collective agreements, such as the Main Agreement between LO and NHO. In businesses that are not bound by collective agreements, the requirements under unstatutory/unwritten law will in practice be the same as the Main Agreement.

The basic condition for temporary layoffs is that justifiable reason/grounds makes it necessary for the company to lay off, cf. the Main Agreement between LO and NHO § 7-1. In principle, one must be able to say that the justifiable reason for layoff exists when the employer for a limited period sees that the employee cannot be employed in a manner that is reasonable for the company.

Examples of factual reasons may be order shortages, inventory/stocktaking and repairs. There may also be grounds for layoffs if unforeseen circumstances have occurred, as mentioned in section 15-3 (10) of the Working Environment Act, such as fire, power outages or natural disasters.

3 Claim for temporality

A prerequisite for layoffs is that the need for reduced labor is temporary. Pursuant to the main agreement between LO and NHO § 7-1, no. 2, layoffs cannot take place beyond six months unless the employer and employee agree that there is still a factual reason.

Layoffs should be used if the need to reduce staffing is of a temporary nature. If there is reason to believe that the conditions that justify the reduction will persist, the employee must be terminated. In other words, the employer is not free to choose whether the company should lay off or terminate employees but must choose based on an assessment of whether the reduction need is temporary or persistent.

4 Discussion and notice

Pursuant to the Main Agreement between LO and NHO § 7-2, the employer is obliged to consult with union representatives before giving notice of temporary layoffs. The consultation should be in accordance with Chapter IX of the agreement on information, cooperation and co-determination. Outside the CBA-sectors an employer only has a duty to consult with employee representatives if the business has 50 employees or more.

The employer's duty to give notice of layoffs follows from the Main Agreement between LO and NHO § 7-3. The main rule is 14 days’ notice. In the event of unforeseen incidents as mentioned in section 15-3 (10) of the Working Environment Act, the notice is two days, in case of fire 14 days. The notice period runs from the end of the working day on the day the notice of layoff is given.

Requirements for the form and content of the notice are set out in § 7-4 of the Agreement. The notice shall be given in writing to the individual employee unless the local parties agree otherwise. Employees who are temporarily absent shall be notified in an appropriate manner.

The employer shall issue a layoff certificate to the employees who are laid off, cf. § 7-4, no. 4. The certificate shall state the reason for the layoff and the probable length of the leave. The notice of layoff can be regarded as a layoff certificate if the aforementioned requirements for the layoff certificate are fulfilled.

If at least 10 employees will be temporary laid off without pay or will have their working hours reduced by more than 50 per cent for more than four weeks, the employer shall notify NAV of this as early as possible. The duty to report must ensure that NAV can assist the business and the employees concerned. The employer must give a similar notice to NAV if he is considering going to collective redundancies, i.e. at least 10 employees will be terminated within a period of 30 days.

5 Selection

If the terms for layoffs are in place, the employer must choose who to temporary layoff. The issues regarding selection scope and selection criteria for layoffs have many similarities to those relevant to downsizing. However, the employer has a slightly larger room for manoeuvring when selecting for layoffs compared to terminating.

In temporary layoffs, seniority may be waived when there are factual grounds. This follows from the Main Agreement between LO and NHO § 7-1 no. 3. The reference to the importance of seniority implies that the individual employee's service time is a factor that must be considered when assessing who is to be laid off. The selection must be based on an overall assessment of all relevant factors, including seniority.

6 Wage obligation during temporary layoffs and entitlement to unemployment benefit

Pursuant to section 3 of the Obligation to pay wages during temporary redundancy Act the employer is obliged to pay layoff salary and other remuneration for an employer period of 15 days after the termination of employment. If the layoff is due to fire, accidents or natural circumstances, there is no employer period. The duty to pay ceases during periods when the employee would still have had leave or similar absence and will continue from the day the work was to be resumed if the layoff had not taken place.

Following the outbreak of the coronavirus, the rules have been temporarily amended. The number of days of pay for employers have been reduced from 15 to two days (the employer period). The purpose is to reduce the employer's costs of layoffs so that they can better adapt to market failure.

After the employer period, the employer is exempted from payroll obligations for full or partial temporary layoff for 26 weeks during a period of 18 months (exemption period). The employer's payroll obligation re-enters after the exemption period, cf. section 3, third paragraph, of the Obligation to pay wages during temporary redundancy Act. The Ministry may issue regulations to extend the exemption period before the employer's payroll obligation re-enters.

The basis of calculation for temporary layoff payment is the same as the basis for calculation of sickness benefit under sections 8-28 to 8-30, cf. the Obligation to pay wages during temporary redundancy Act section 4. For full layoffs, the payment per working day shall be the average salary for a working day.

Employees who are temporary laid off are normally entitled to unemployment benefits in accordance with the provisions of section 4-7 of the National Insurance Act. Pursuant to section 4-9 of the National Insurance Act, unemployment benefit can be granted when the employee, after temporary layoff, has been registered in NAV as a real job seeker for at least three of the last 15 days.

The period in which employees are entitled to unemployment benefits during lay-off is limited by the National Insurance Act section 4-7 to 26 weeks during a period of 18 months. In the Regulations on unemployment benefits when temporary laying off section 6-8 a), it is stated that the benefit period may be extended in accordance with the provisions of the Obligation to pay wages during temporary redundancy Act with regulations. The duration of the period is thus harmonized with the period the employer can temporary layoff employees without obligation to pay wages.

It has been decided to temporarily remove the three-day waiting period before paying unemployment benefits for employees who are laid off. In practice, this means that employees can receive unemployment benefits from the day after the end of the employer period. The requirement in section 4-3, second paragraph, of the National Insurance Act on reduced working hours for entitlement to unemployment benefit has been amended from at least 50 to at least 40 per cent.

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