Episode 6: Termination Agreements

SVW is presenting a new episode of the "Norwegian Employment Law in 10 minutes" podcast. Hosted by Lill Egeland and featuring Ingrid Mjøsund, this episode unpacks the nuances of termination agreements and severance clauses within the context of Norwegian employment law, providing valuable insights for employers and employees alike.

Termination Agreements: A Focused Discussion

• Concept and Validity: The episode begins with an exploration of the concept of termination agreements and severance clauses. Specifically, it discusses the legality and practicality of including severance clauses in employment contracts in Norway, highlighting that such clauses are generally valid only for top management positions, like CEOs.
• Severance Clauses: It's advised against including severance clauses in contracts for positions other than the CEO. A recent judgment has indicated that for other management roles, these clauses may not hold up, giving employees the option to choose between severance payment or challenging a dismissal.
• Negotiating Termination Agreements: The conversation shifts to the end of employment relationships, emphasizing the strategic importance of termination agreements for employers. Due to the high threshold for valid terminations and potential lengthy legal battles, reaching a mutual termination agreement can be a preferable route.
• Legal and Practical Advice: The podcast provides practical advice on negotiating termination agreements, including the importance of presentation, choice of words, and understanding the legal and commercial elements essential for drafting an agreement.
• Pitfalls and Best Practices: Highlighting common pitfalls, such as poor communication and unlawful termination risks, the discussion offers best practices for employers. It underscores the need for clear, respectful dialogue and proper legal framing when proposing termination agreements.
• Content of Termination Agreements: Key components of a robust termination agreement are outlined, including notice periods, waiver wordings, benefits continuation, and the negotiation of severance pay. The episode emphasizes the lack of a standard regulation on severance pay in Norway, making each case unique.
• Negotiation Strength and Expectations: Finally, the episode delves into the factors influencing the negotiation of severance pay, including the legal strength of the case, industry standards, and previous company practices. It stresses that while there's no formula for calculating severance, experienced legal advisors can offer guidance on appropriate levels based on various factors.

Conclusion

This episode of "Norwegian Employment Law in 10 minutes" provides a comprehensive overview of termination agreements, offering valuable insights for navigating these complex legal waters. Whether you're an employer or an employee, understanding the subtleties of these agreements can significantly impact the resolution of employment terminations in Norway.

Stay tuned for our next episode, where we will delve into other critical aspects of employment law.

Transcript

[00:00:00][Intro] [00:00:07] Lill: Hi, and welcome to a new episode of the podcast, Norwegian Employment Law in 10 minutes. My name is Lill Egeland, and today I am here in studio with my colleague, Ingrid Mjøsund. Hi Ingrid. 

[00:00:16] Ingrid: Hello. Hello. 

[00:00:18] Lill: Very happy to have you here. 

[00:00:19] Ingrid: Thank you for being here. 

[00:00:20] Lill: Now, this is. The, concept of this is basically to provide some higher-level information about Norwegian employment law in 10 minutes.

[00:00:26] And the purposes that people who do not speak Norwegian can actually learn something about Norwegian employment law. And today's topic is termination agreements. So let's just look at the concept of a termination agreement, because there are really two situations where you as an employer could want to have a termination agreement or a severance clause.

[00:00:47] It is either in the employment contract. Wouldn't that be good if you could include a severance clause in the contract saying that, listen, if we want to fire you, we can do so without cause. And against payment of a certain severance level. What do we think about those types of clauses? Are they valid in Norway?

[00:01:04] Ingrid: Well, they could be valid, but only for the top manager of a business. 

[00:01:10] Lill: Yeah. 

[00:01:10] Ingrid: Typically the CEO. If you were to include such a clause with another employee, let's say something within the management team, a CFO, we have a recent judgment by the Norwegian court saying that, as a starting point, such a clause is not valid in itself.

[00:01:29] And if you include such a clause in the employment contract, the employee in fact could choose to either choose the severance payment or to challenge the dismissal. 

[00:01:41] Lill: Yeah. So basically not a good idea to include severance classes in the employment contracts of any other than the CEO of the company basically.

[00:01:51] Ingrid: Correct. Yeah. 

[00:01:51] Lill: And there are some stuff to think about when you include the severance classes in the CEO contract. Also, one of the most important things would be to, first of all, explicitly state that the CEO is waiving the job protectionright. And secondly, to link it to any non-compete clauses. Now that's really a topic of itself.

[00:02:10] I think I may, I'll make a note of the fact that we should have a separate episode on this. 

[00:02:15] Ingrid: Yeah. 

[00:02:15] Lill: All right. So we've talked about severance clauses in the context of an employment contract. Now, if we move towards the end of the employment. This is typically a situation where an employer would want to be able to conclude termination agreements, and that's fully understandable because let's face it. If you want to terminate an employment relationship in Norway without the use of a termination agreement, then the threshold for a valid termination is very high.

[00:02:44] And secondly, and that regardless of whether it's a performance termination or a redundancy termination is quite high. And another topic is, let's assume that you actually have a really good case and you terminate, and then the employee files a lawsuit and sues you. What then? 

[00:03:02] Ingrid: The employee are fully entitled to do and then you actually are obliged to pay salary until the case is finally settled by a court, which could take up to 12 months.

[00:03:14] Lill: Yeah, that's right. and not only do you have to pay salary, 

[00:03:17] Ingrid: You have to keep the employee.

[00:03:19] Lill: That's right. And that's something obviously that's a big negotiation chip for any employee. Of course. It's also a correct way, I mean from a legal point of view, you could argue that, it's burdensome for the employer, but it certainly gives the employee the possibility to come back to work and continue work if he or she wins the case. 

[00:03:41] Ingrid: Yeah, 

[00:03:41] Lill: So it's, it is of course, a, burden for the employer, but, there's some logic to the system. But anyway, keep that in mind. As an employer, you can have a good case as you want, but still regardless, you will have this employee if he sues or she sues, you will have this person for six to nine to 11 months really working for you in the company.

[00:04:00] Yeah, that's the main rule, and this is really a big incentive for any employer to look into the concept of a termination agreement. 

[00:04:10] Ingrid: Yeah. 

[00:04:10] Lill: Can you do that in a situation where you want to fire someone? Can you do that in and instead have a termination agreement? 

[00:04:16] Ingrid: Yeah. 

[00:04:17] Lill: Tell me what you need to do?

[00:04:18] Ingrid: As an employer you have the free, and as an employee, you have the freedom to conclude a termination agreement, but the employee does not have to accept and decisive of how, whether you are able to reach a mutual termination agreement or not is typically the strength of, your case and negotiation strength.

[00:04:38] From the employer's point of view, and that will also affect how much money would you actually have to pay in order to get a mutual With this employee. So as a starting point, yes, you are free to initiate such a conversation. However, the employee doesn't have to accept, and typically whether or not the employee actually could take such an agreement depends on each situation. Yeah. And how good case you have. 

[00:05:06] Lill: Exactly and how much money are you willing to put on the table. Having said that, before we, we move to the size of such agreements. Any pitfalls that we typically see when employers take these conversations with the employees and, with the aim of reaching a termination agreement, 

[00:05:21] Ingrid: How the case is presented to the employee, when the intention is to start a dialogue of reaching a mutual termination agreement is crucial.

[00:05:32] How you present the case, how you present, the employer's view, the feedback, whether it's a lack of performance being the ground of the termination agreement or a, redundancy process, how you present everything to the employee is, crucial. 

[00:05:53] Lill: Yeah. And another thing that, that we see very often is if you have the wrong choice of words in these conversations. Let's assume we are having this conversation now and I'm saying to you like, listen, this is not working and basically you're not doing your job well. And, We're gonna terminate unless you take this package.

[00:06:14] And, yeah. So this is a typical situation where this is not a good idea because if you go to court, if the employee goes to court, you risk that you have actually terminated unlawfully in this meeting. 

[00:06:26] Ingrid: Yeah. 

[00:06:26] Lill: So choice of words in terms of how you present this to the employee is really important.

[00:06:33] And I fully agree with you. the, way you present. The background for wanting to, conclude the termination agreement also hugely affects the success likelihood. After this conversation. 

[00:06:47] All right. Now in terms of termination agreement and content of the termination agreement, Obviously we have standards. So when people come to us, when employers come to us, we basically provide them with the standard and say, here's what you need to include. If you want to make an agreement from scratch, I can tell you that, first of all, at least you need to include information on when is the employee going to end the termination? Does the employee work during the notice period? You need to include waiver wordings. So saying that, okay, the termination is now ended and, the parties have no claims against each other for eternity. 

[00:07:26] Ingrid: Yeah. 

[00:07:27] Lill: You are not, obviously not going to say it that way, but still you need to include waiver. You need to have a view to, will the employee keep their benefits? And for how long? What about car allowance? Shall that apply during the notice period? What about bonus? Are you paying bonus? Are you not paying bonus? So there are some commercial, obviously a lot of commercial elements, and there are the legal elements, of the contract.

[00:07:50] Ingrid: Yeah. 

[00:07:50] Lill: Typically, if the employee is a lawyer, you're not obligated to pay. But in Norway it's not uncommon for you to pay as a part of the settlement. Now, one last point, then. How much do you have to pay? 

[00:08:04] Ingrid: We do not have any specific regulation on how much you have to pay under Norwegian Law, but the size of a severance would depend on the negotiation strength of each party.

[00:08:15] Lill: Yeah.

[00:08:16] Ingrid: Let's say that you indeed have a redundancy process. You have conducted a thorough selection process, and you instead of issuing a formal notice of termination. Want to reach a mutual agreement with the employee. Depending, of course on how you present the case to the employee, that will typically be a situation where you as an employer have a stronger case and not necessarily a strong case.

[00:08:44] Lill: Not, that's a slam dunk, right? 

[00:08:47] Ingrid: No. That will typically be a situation where you have a stronger case. We do not have any specific regulation on the size of a severance under region law. So it's quite difficult sort of to say.

[00:09:00] Lill: It really depends, right? Yeah, for sure.

[00:09:03] But, that's an important takeaway that, we cannot calculate this in any way automatically. What we can do, however, and what we typically do is the clients tell us about the case. 

[00:09:14] Ingrid: Yeah.

[00:09:14] Lill: And obviously we have experience in knowing what the typical correct level is, so we will, we'll check how good the case is from a legal point of view. We'll look at all the other elements, including whether the company has paid big amounts of money in these cases before, because that's not legally an issue, but it is practically an issue. 

[00:09:32] Ingrid: Yep. 

[00:09:33] Lill: It raises the expectations. The industry will also be relevant. In some industries the payments are higher than other and the expectations are equivalently higher.

[00:09:42] So, it's fully possible to, give a ballpark, size for this. But, it all depends on a number of elements. 

[00:09:50] So we come to the end of the show. thank you for listening and, hope to see you and hear you again in the next episode of Norwegian Employment Law. In 10 minutes,