On 31 January 2006, the Norwegian Supreme Court ruled in favour of the employee side in a transfer of ownership case filed against the Scandinavian airline, SAS. The employees concerned will now be entitled to compensation for lost pay and working time, as well as to retain employment rights lost as a result of changed employment conditions.
On 31 January 2006, the Norwegian Supreme Court (Høyesterett) ruled in favour of the employee side in the transfer of ownership case filed against the Scandinavian airline, SAS Group. As a result, the previous Braathens employees employed by SAS, following the company’s takeover of Braathens in 2001, will retain their employment rights, including accumulated pay, working conditions, pension and seniority rights. The Supreme Court thus reversed two previous court rulings in this case (NO0311101N). Trade unions regard the ruling as a victory, not just for the previous employees of Braathens, but for all employees affected by a transfer of ownership in Norway. The ruling is first and foremost seen to have specific relevance to this particular case, but it nevertheless elucidates EU case law in this area, and is also expected to have more general applicability for similar cases in the future. As such it is seen as strengthening the employment protection of workers in companies subject to a transfer of ownership in Norway.
Background
In December 2001, SAS acquired ownership of the Norwegian airline Braathens (NO0111125N). The takeover followed a period of poor financial performance by both companies, and received wholehearted support from employees and management in both cases. In January 2002, a process of merging the business areas of the two companies was initiated by SAS. It involved a wide range of activities, of which the most important were sales, cargo, technical support services and ground-handling services. In relation to most of these areas the merger was seen, by all parties, to entail a transfer of ownership, in accordance with the provisions of the Act relating to Worker Protection and Working Environment (AML). In a transfer of ownership, according to the AML, the purchasing company commits itself to the equal treatment of all employees involved in rationalisation and restructuring processes as a result of the change in ownership.
In relation to ground-handling services, however, the process of restructuring was not seen by the employer to entail a transfer of ownership per se. Here the activities of Braathens were closed down soon after the merger, and although around 260 employees were employed by SAS SGS, more than 800 employees were made redundant. They received various severance packages or employment in other parts of the organisation or SGS. Reapplying for positions in SGS meant that the previous Braathens employees would stand to lose their accumulated seniority rights and wage levels. Nor would they be guaranteed the same working time as they had enjoyed when employed in Braathens.
In November 2002, more than 300 employees of Braathens, with legal representation from the Norwegian Confederation of Trade Unions (Landsorganisasjonen i Norge, LO) and the Confederation of Vocational Unions (Yrkesorganisasjonenes Sentralforbund, YS), filed a petition against SAS, stating that the treatment that they received in relation to the reorganisation of SAS and Braathens ground services was contrary to the provisions of the AML. The issue at stake was whether or not Braathens had closed down its ground-handling activity, with a view to buying such services elsewhere (primarily from SAS), or whether it had been transferred to SAS. In the case of a closure of activities, Braathens was free to reduce the number of employees in the company, while in the case of a transfer (in accordance with the AML) Braathens employees were entitled to be transferred to SAS, and as such be subject to the same treatment as SAS employees in the case of downsizing and workforce reductions.
The Supreme Court ruling
In two preceding lower court decisions, the ruling had gone in favour of the employer, SAS. The courts stated that the transfer of ownership involved such a small number of employees and amount of equipment that it would not be seen to fall within the scope of the AML.
The Supreme Court ruling reversed all this. Its ruling emphasises that the provisions of the AML implement the EU Directive (2001/23/EC) on workers' rights in transfers of undertakings. From legal practice in the European Court of Justice (ECJ) on the interpretation of this Directive, the Supreme Court drew three criteria that must be met for the provisions on ownership transfer to come into effect. These are as follows:
- the transfer involves an independent financial entity;
- the enterprise has been transferred to a new owner on the basis of a contract or through a merger of enterprises; and
- the activities being transferred to a new owner remain the same as in the enterprise from which they are being transferred
The dispute between SAS and the previous employees of Braathens hinged on whether or not the third of these principles had been met - ie the extent to which the nature of the activities transferred, and as such the identity of the enterprise, remained the same after transfer. There was no disagreement between the parties on the two other principles.
The Supreme Court undertook a comprehensive review of relevant ECJ cases in this area, in order to identify the necessary criteria by which to judge whether or not a change of identity has taken place. On the basis of this, the five Supreme Court judges unanimously agreed that the third principle has been met in this case. The infrastructure within which activities are carried out remains the same, and a substantial part of the ground services equipment and personnel previously employed by Braathens was taken over by SAS (between 20% and 25%). Moreover, the customer base also remained the same after the transfer. As such the Supreme Court states that the AML's rules on ownership transfer come into play, and that SAS thus takes on responsibility for the accumulated rights and duties of the previous Braathens employees.
Commentary
The Supreme Court ruling is first and foremost a victory for the employees of Braathens who lost their accumulated rights and benefits as a result of the merger. They will now be entitled to compensation for pay and working time loss as a result of changing employment conditions. Moreover, they will also have the right to retain their seniority status prior to the merger. LO has pledged that it, on behalf of the employees involved, will demand compensation for wage losses suffered by the employees.
The general applicability of the SAS/Braathens case is not at all clear. The Supreme Court points to the complexity of cases involving transfer of ownerships, and the difficulties of assessing, in advance, whether or not such transfers have taken place. Its ruling is nevertheless seen to be in line with ECJ case law, and to this end the Supreme Court provides a comprehensive review of EU law in this area. As such, the judgment will beyond doubt provide a reference point in future cases on transfer of ownership. This argument is further strengthened by the fact that the ruling can be argued to focus less on the specifics of individual companies, and more on the continuity of the activities being transferred. (Håvard Lismoen, FAFO Institute for Applied Social Science)