Employees have rights in a Norwegian transfer of business

Norway’s current Working Environment Act entered into force 1 January 2006. Due to the country’s membership in the European Economic Area (EEA), EU rules regarding transfer of undertaking apply, in principle irrespective of whether a sale is of shares or assets. These rules have since 1994 been incorporated in the Working Environment Act. If an acquisition or a merger constitutes a transfer of undertaking which falls within EU Directive 2001/23/EF, various obligations related to the employees of the target must be respected by both the seller and the buyer. Following last month’s look at merger regulations, in this article we examine the regulations regarding employees and how they operate in practice.

Transfer of undertaking

A transaction is considered a transfer of undertaking if it implies transfer of an autonomous unit that retains its identity after the transfer. In practice, a share sale in itself does not constitute a transfer of undertaking. In relation to asset sales, it must be considered whether the above criteria are complied with. The rules do not only apply to transfer of the entire business of a legal entity, but may also extend to transfer of departments, and may in principle apply to the transfer of only one employee.

If the rules apply, the Working Environment Act regulates the relationship to the employees in the transferred undertaking in detail. If only parts of a legal entity are transferred, it must be assessed as to which employees pertain to the transferred business. The main principle is that the transfer (which follows from an agreement which the employees are not a party to, and are not in a position to influence) cannot result in a reduction of the transferred employees’ rights or obligations. Accordingly, all rights and obligations of the former employer in force on the date of transfer must – as the main rule – be transferred to the new employer.

Arne Didrik Kjørnæs is a senior partner at Wikborg Rein in Oslo, and Tormod Ludvik Nilsen is a senior associate at Wikborg Rein in Shanghai. Simen Smeby Lium, a senior associate at Wikborg Rein in Oslo, also contributed to this article