Denmark: Collective Redundancies

Introduction

The weak business conditions have resulted in many companies being compelled to reduce their costs. Such reductions can be achieved in several ways, but will in most situations affect the employees, who typically constitute a significant part of the costs.

When the employer chooses to terminate the employment of many employees within a period of 30 days, the redundancy procedure must comply with the Danish Act on Advance Notice etc. in connection with Collective Redundancies (Act No. 414 of 1 June 1994 - hereinafter the "Collective Redundancies Act"). The Act constitutes the Danish implementation of the Council Directive 98/59/EC on the approximation of the laws of the Member States relating to collective redundancies.

Pursuant to the Collective Redundancies Act, a special procedure of informing and consulting employee representatives applies in connection with redundancies covered by the Act.

The Act does not apply if the employer has obligations similar to those of the Collective Redundancies Act under a collective agreement. Such obligations are, inter alia, stipulated in the Industrial Agreement. It falls outside the scope of this article to further elaborate on any obligations ensuing from collective agreements. However, as a general rule, the collective agreements resemble the Act, which means that, to a great extent, the practical and legal approach will be the same.

Scope of Application

The Collective Redundancies Act applies in connection with redundancies contemplated by an enterprise where the redundancies within a period of 30 days will comprise:

Executive Order No. 978 of 3 October 2011 on the concept of enterprise/workplace and the calculation of the number of employees under the Act on Advance Notice etc. in connection with Collective Redundancies (hereinafter the "Order on Advance Notice") lays down further rules on the delimitation of the enterprise concept and on the calculation of the number of employees.

The concept of enterprise

There may often be doubts as to whether the concept of enterprise applies in the sense of the Collective Redundancies Act.

Pursuant to the Order on Advance Notice, the concept of enterprise covers sole proprietorships, limited liability companies, associations, foundations as well as municipal and governmental administrations etc., and it is irrelevant to the scope of the Act whether the enterprise is carrying on business for profit or operating without the purpose of financial gain.

If an enterprise is part of a group, it will be assessed whether the threshold limits of the Act are met in each single group enterprise. As such, a group is not considered as one enterprise.

In a judgment from 1990 from the Danish Western High Court, a private limited company was considered an enter-prise in the sense of the Act even though its management was shared with other companies within the same group of companies. The High Court attached importance, inter alia, to the fact that the company was operated in its own name and at its own expense and that it had an independent production unit - also for buyers outside the group.

One of the main objectives of the Collective Redundancies Act being to enable the local community, job centres, etc. to prepare for a number of unemployed people, a further division of the concept of enterprise must be made with regard to companies that have several entities located around the country to the effect that each employment region is treated separately. This means that if an enterprise has an entity in both Esbjerg and Copenhagen, each entity is considered an independent enterprise in the sense of the Act.

If an enterprise has several local entities located in the same employment region (e.g. shops), all entities are considered as one enterprise. However, if the threshold limits of the Act are exceeded for one of the local entities, the workplace in question will be considered as one enterprise that has to comply with the procedures specified in the Act.

The calculation of the number of normally employed staff

A decisive element of the rules on advance notice is how many employees are normally employed in the enterprise.

Pursuant to the Order on Advance Notice, the number of employees is calculated as an average of the number of staff normally employed by the enterprise in the four last quarters. The calculation is performed by counting the number of staff at the end of February, May, August and November, respectively, so that the counting of the employees paid by the month can take place immediately whereas the counting of the other employees takes place at the end of the latest completed pay period.

The counting of the number of staff takes place without regard to the length of the working hours or to whether the employee is only a fixed-term employee. Employees on leave who are entitled to resume duties and employees who are seconded are also to be included in the counting.

However, employees who by virtue of their employment relationship hold such independent positions in the enter-prise that they rank alongside with an employer are not to be included in the counting. This will normally be the managing director and other executive officers who fall outside the scope of the concept of ordinary employees under, inter alia, the Danish Salaried Employees Act and the Danish Holiday Act.

The calculation of the number of contemplated redundancies within a period of 30 days

Decisive for the application of the Act is whether the number of contemplated redundancies within a period of 30 days exceeds the threshold limits of the Act.

Pursuant to the Order on Advance Notice, the 30-day period is a rolling period that covers any period of 30 calendar days. As such, the 30-day period is independent of turns of the month and is not linked to any further specified start or end date.

In an award of 24 October 2003 of the Industrial Arbitration Court, the arbitrator was to consider the interpretation of the 30-day rule in a situation where the employer had first completed a round of layoffs that was not subject to the Act. Within 30 days after this round of layoffs, the employer was, however, compelled to make an even higher number of employees redundant. All in all, the redundancies thus exceeded the critical threshold. The second round of layoffs was performed in compliance with the procedure of collective redundancies, but the question was whether the first redundancy round should in fact also have complied with the procedure. Initially, the arbitrator stated that in principle the actual number of redundancies within a period of 30 days will determine the application of the Act. However, if the employer is able to prove that at the time of the first redundancy round there was no reason to expect further redundancies within a period of 30 days, the obligations of the Act will not apply, although subsequent circumstances entailed further dismissals.

The calculation only includes dismissals that are not due to the employee. Thus, only dismissals due to the circumstances of the enterprise are to be included in the calculation. This also includes the employee's own notice of termination if such termination is caused by the enterprise's offer for particularly favourable redundancy packages - however, only if at least five employees are dismissed at the same time due to the circumstances of the enterprise.

Expiry of fixed-term employment relationships are not to be included in the calculation unless the enterprise terminates the employment relationship prematurely.

A special problem is related to the situation where an enterprise notifies material changes in the terms and conditions of employment for a major group of employees. This could, for instance, be a change of the place of work or the hours of work. The problem implies a risk that so many employees will consider the notified changes as a dismissal that it results in a collective redundancy according to the Act.

A solution to this problem could be that the enterprise - prior to the formal notification of change - offers the employees a possibility to accept the changed employment conditions on a "voluntary" basis. When the enterprise knows the number of employees who have not voluntarily accepted the new conditions - which consequently must be notified formally to the employees - it will also be possible to assess whether such notification is subject to the Collective Redundancies Act.

Procedure

Initial considerations

Pursuant to the Danish Act on Informing and Consulting Employees (Act No. 303 of 26 April 2005), the employees must - through their representatives - be informed of the situation and the development of the enterprise. This duty to inform and consult also applies in the event of a contemplated collective redundancy round.

The enterprise's duty to inform entails that the employee representatives must - depending on the circumstances - be informed and consulted before the management of the enterprise takes the final decision to carry out a collective redundancy procedure. As the case may be, it will be possible to impose a duty of confidentiality on the employee representatives until the commencement of the procedure.

In the planning of collective redundancies and the subsequent consultation of the employees or their representatives it is important that the enterprise determines the criteria that are of importance for the selection of the employees to be made redundant. In this connection, it is important to bear in mind that these criteria may of course not be inconsistent with various rules regarding anti-discrimination and equal treatment.

Written notification to the employees

In connection with the negotiations, the enterprise must provide the employee representatives with the relevant information that is of importance to the case, including (i) the reasons for the redundancies; (ii) the number of the contemplated redundancies; (iii) the total number of staff normally employed by the enterprise; (iv) the criteria to be applied for the selection of the employees to be made redundant; (v) the expected period in the course of which the redundancies are to take place, and (vi) whether any of the employees to be made redundant are entitled to redundancy allowances.

A copy of the written notification must at the same time be forwarded to the relevant Regional Employment Council (First Notice).

The purpose of this duty of information is to create the necessary basis for genuine negotiations. In view of the objective of the provision, the enterprise must provide the information in sufficient time before the consultations take place.

Consultation process

A crucial element of the Collective Redundancies Act is the employees' right to be consulted by the employer before the redundancies are carried out.

Pursuant to the Act, the consultations must take place with the employees or with their representatives. It is definitely most expedient that the consultations take place with the employee representatives rather than with all employees. If a cooperation committee has been established in the enterprise, the members of such committee may act as employee representatives - possibly supplemented with representatives from groups of employees who are not represented in the cooperation committee.

If no cooperation committee has been established, the enterprise should - in connection with the presentation of the proposed collective redundancies - ask the employees to elect representatives (1-2 for each professional group) who can participate in the consultation process.

The employees or their representatives are entitled to be accompanied by special advisors in the consultation process. Such special advisors could come from the enterprise, from relevant unions or be external advisors.

The purpose of the consultations is to reach an agreement on avoiding or reducing impending redundancies and to mitigating their consequences by means of activities particularly aimed at redeploying or retraining the employees who are to be made redundant.

Consequently, the enterprise is under an obligation to initiate - as early as possible - a consultation process with the employees or their representatives. "As early as possible" means that the consultations must commence in sufficient time to ensure a genuine content and to answer its purpose before a final decision is made.

Bearing in mind that an enterprise starting a collective redundancy procedure has naturally had many prior considerations regarding the necessity of carrying through the redundancies, it may seem artificial to talk about genuine negotiations. However, there is nothing to prevent making it clear, relatively early in the consultation process, that the redundancies are necessary, after which the attention can be focused on the redundancy conditions for the employees to be dismissed.

In principle, the Collective Redundancies Act does not require the consultation process to be of certain duration, always provided it is a genuine consultation. The process may in many cases be completed within a week.

However, a special exception applies where the number of redundancies constitutes at least 50 per cent of the number of employees at a workplace with a normal staff of at least 100 persons. In that case, the Second Notice to the relevant Regional Employment Council, see paragraph 3.5, cannot be submitted until 21 days after the First Notice has been submitted.

Both the employees and the Regional Employment Council must observe their duty of confidentiality with regard to the information explicitly disclosed in this connection as confidential information.

In an award of 28 March 1994 of the Industrial Arbitration Court, the arbitrator was to consider whether genuine negotiations with the shop stewards had taken place in connection with 36 redundancies out of a staff of 41 employees. In the case in question, the enterprise had informed the national employment agency on Friday that a short-time working scheme had been cancelled with a view to commence negotiations on the close-down of the enterprise. Not until the following Monday, the employees were informed about the decision of the management, after which a consultation process took place between the management and the shop stewards on Monday and Tues-day. The arbitrator stated that the management of the enterprise ought at a much earlier point in time have realised that redundancies of a major number of employees was an obvious possibility and that the management consequently should have informed the shop stewards much earlier.

Result of the consultations

The obligation of the enterprise to conduct genuine negotiations does not mean an obligation to reach an agreement or a specific negotiated outcome. Neither is the enterprise obligated to let the consultation process have any influence on its decisions regarding the contemplated redundancies. In the end, the enterprise is free to decide carrying through the proposed redundancies.

To achieve the best possible conclusion of the matter, it may often be of advantage to the enterprise to enter into an agreement on the terms and conditions to be offered to the employees who are made redundant.

Such agreement may consist of various elements, including that the employees are released from their duties after having finalised certain tasks; that the employees are granted time off for job search, for attending courses/supplementary training; that overtime is not to be taken as time off in lieu, but will be paid out instead; that non-solicitation clauses become void or are reduced; that longer terms of notice are agreed upon; that holiday will not be ordered to be taken in full; or that a special redundancy allowance is paid.

Particularly in situations where an enterprise or a department is closed down and it is necessary to retain the employees for an extended period of time in connection with the close-down, it will be of advantage to the enterprise to offer a special retention bonus to the employees against their staying with the enterprise until a certain date.

Where it is possible, the redundancy agreement that has been negotiated with the employee representatives should be offered to the individual employee as an individual redundancy agreement in which the employee renounces any potential claim against the enterprise in connection with the termination of the employment relationship.

Notice

If the enterprise - after having consulted the employees or their representatives - still intends to carry through the redundancies, the enterprise must inform the relevant Regional Employment Council in writing (Second Notice). The notice must, inter alia, contain information on the reasons for the redundancies, the number of staff employed in the enterprise and on the period during which the redundancies are to be carried out.

Subsequently, the enterprise must - as soon as possible and no later than 10 days after the Second Notice has been submitted - inform the relevant Regional Employment Council of the persons affected by the redundancies (Third Notice). The notice must normally contain information on the employee's name, civil registration number (CPR Number), job function as well as the dates of employment and termination.

At least at the same time as the submission of the Third Notice, the affected employees must be informed of the redundancies.

Finally, there is a duty to inform the relevant Regional Employment Council of the final result of the consultation process with the employees (Fourth Notice). However, this information will often be contained in the Second or Third Notice.

The employees (or their representatives) must receive a copy of all information forwarded to the Regional Employment Council.

Entry into force of the redundancies

The redundancies will at the earliest enter into force 30 days after submission of the Second Notice to the Regional Employment Council. However, this does not mean that the individual terms of notice are prolonged by 30 days, only that the term of notice cannot expire until 30 days after submission of the Second Notice.

This rule is only of practical importance to employees with a term of notice that is shorter than 30 days, like employees paid by the hour or salaried employees on probation.

More stringent rules are applicable where the number of redundancies constitutes 50 per cent or more of the total number of employees at a workplace that normally employs at least 100 persons. In such cases, the redundancies cannot enter into force until eight weeks after the information on the commencement of a consultation process has been forwarded to the Regional Consultation Council.

Sanctions

The enterprise's failure to comply with the provisions of the Act does not entail that the redundancies become invalid or that the terms of notice are prolonged. However, non-compliance may have financial consequences in the form of a fine, and also the employees may be awarded compensation.

Compensation

If the enterprise does not commence a consultation process with the employees or omits to inform the Regional Employment Council, the dismissed employees will be entitled to compensation.

In a judgment from 1994 from the Danish Western High Court, the enterprise had informed the Labour Market Board (now the Regional Employment Council) of projected redundancies by telephone - and not in writing as required by the Act. As the Act explicitly provides that the information is to be submitted in writing, the dismissed employees were entitled to compensation not only in the form of salary but also of holiday pay.

The compensation is calculated as 30 days' salary as from the date of termination, i.e. the date on which the enter-prise has dismissed the specific employees with their individual terms of notice. However, if the number of redundancies constitutes at least 50 per cent of the number of employees at a workplace that employs a staff of at least 100 persons, the enterprise is obligated to pay compensation equivalent to eight weeks' salary as from the date of termination.

The calculation of the compensation amount must take into account all normal salary components, including basis salary, pro-rata share of bonus, if any, pension contribution, etc. The value of a company car, free telephone and other benefits must also be included in the calculation.

However, the compensation is reduced by the salary which the employee has received during an individual period of notice. To employees with a term of notice of 30 days/8 weeks, the compensation will be of no practical importance.

It has not yet been clarified whether income earned from a new employer may be deducted, but this will most likely be the case for the relevant period.

Fine

Furthermore, pursuant to Section 12 of the Act, violations of the provisions set forth in the Act regarding information and consultation as well as advance notice to the Regional Employment Council is punishable by a fine.

The fine can be imposed both on the responsible manager and on the enterprise as a legal person. According to the explanatory notes to the bill and the information from the attorney general, the corporate responsibility is the pri

mary consideration. This especially applies if the violation is motivated by financial reasons, but also in cases where the negligence is not aggravating. Therefore, charges are normally brought against the enterprise. Where the responsible manager(s) has acted deliberately or with gross negligence, the person(s) in question will also be charged.

As far as is known, there only exist a few old and un-published decisions regarding fines. As none of the judgments are available, the following description is based on the descriptions found in legal literature.

At the Criminal Court of Frederikssund, the responsible manager of the enterprise was fined with DKK 2,000 for non-compliance with the rules in force at that time. The majority attached importance to the fact that at the time when the meeting with the cooperation committee was held, the final decision had already been made to dismiss 93 employees. The defendant had thus not in a sufficiently clear manner invited to consultation - neither according to his own statements nor to any written documents.

By judgment of 27 April 1981, the Court of Middelfart found that the enterprise had not observed its duty of consultation in connection with a decision to close down the enterprise and move the production place. Also in this case, the responsible manager was charged with a fine of DKK 2,000.

Conclusion

The fact that the number of contemplated redundancies in a round of layoffs exceeds the threshold limits of the Collective Redundancies Act does not necessarily mean that the procedure will become more difficult or lengthy. However, it is important that the planning takes into account the requirements laid down in the Act.

First of all, it must be clarified whether the contemplated dismissals are at all subject to the Collective Redundancies Act. In this connection, it will be of importance if the enterprise has entities in several different employment regions.

If the Act applies, the employees must be involved as early as possible during the process - and before a final decision is made. The consultation of the employees must be genuine, but the main emphasis may be laid on a negotiation of the redundancy conditions offered to the employees to be made redundant. Irrespective of the fact that it is not a requirement that the consultation process ends with a result, it should to the greatest extent possible be endeavoured to achieve an agreement at the end of the consultations.

Apart from the obligation to consult the employees - which is the main principle of the Act - the enterprise must also be aware of the obligation to inform the relevant Regional Employment Council of the process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.