The Supreme Court of Iceland (Hæstiréttur Íslands) ruled in September 2024 that the states termination of fixed overtime agreements by the National University Hospital (Landspítali – Háskólasjúkrahús) did not constitute collective redundancies under national law, as the changes did not significantly alter the essential terms of the employees’ contracts.
Consequently, the pleas of the applicants were dismissed, affirming that public employees are protected under the same laws as private-sector employees, but the specific changes in this case did not meet the threshold for collective redundancies.
The significance of the case, however, is elsewhere. In its judgment, the Supreme Court of Iceland overturned the underlying judgment of the Court of Appeal (Landsréttur), who had made a request for an advisory opinion, and had faithfully applied the resulting judgment of the EFTA Court.
Background and facts
The case before the Supreme Court of Iceland is Mál nr. 3/2024, Iceland v Association of Chartered Engineers in Iceland, the Computer Scientists’ Union, and the Pharmaceutical Society of Iceland.
The applicants in this case are representative associations, and argued that the state’s decision to unilaterally terminate fixed overtime agreements amounted to collective redundancies as defined by national law. During the proceedings, the Court of Appeal made a request for an advisory opinion of the EFTA Court on the basis of Article 34 SCA.
The Court of Appeal had sought an interpretation of the Collective Redundencies Directive (Directive 98/59), which had been incorporated into Icelandic law through the said national court, given the Directive’s extention to the EEA.
In the case, the state had unilaterally ended these agreements as part of cost-cutting measures, offering new temporary contracts instead. The changes affected 319 employees, with 113 experiencing a reduction in overtime hours and corresponding pay cuts. They, through their representative association, contended that the state failed to follow the procedural requirements for collective redundancies, such as notifying the appropriate national authorities, and consulting with employee representatives.
The Judgment of the District Court
The District Court, at first instance, decided in favour of the state, ruling that the termination of fixed overtime agreements by the National University Hospital did not constitute collective redundancies under national law.
For it, the first instance court held that the national applied only when the employment relationship between the employee and the employer was fully terminated. Consequently, it concluded that the procedural requirements for collective redundancies, such as consultations with workers’ representatives and notifications to the national authority, were not applicable in this case.
The Court of Appeal and a request for an advisory opinion
This decision was later appealed by the plaintiffs to the Court of Appeal. It reversed the judgment of the District Court, which had initially ruled in favour of the Icelandic state.
But in reversing this decision, the Court of Appeal first determined, given the questions of EEA law that were relevant, it would make a request for an advisory opinion to the EFTA Court under Article 34 SCA.
Judgment of the EFTA Court
The EFTA Court delivered its judgment in the request in Case E-9/22, Association of Chartered Engineers in Iceland, the Computer Scientists’ Union, and the Pharmaceutical Society of Iceland v Iceland (Verkfræðingafélag Íslands, Stéttarfélag tölvunarfræðinga, Lyfjafræðingafélag Íslands v Iceland) in April 2023. It can be read here.
The EFTA Court first addressed the admissibility of the request, countering Iceland’s argument that the case was inadmissible because it involved workers employed by a public administrative body, which would fall outside the scope of the Directive. The EFTA Court stated that the Directive was implemented into national without excluding public sector employees, thus making the request admissible.
On substance, the question concerned interpretation of “collective redundancies” as defined in Article 1(1)(a) of the Directive. The EFTA Court reiterated established case-law, stating that any termination of an employment contract not sought by the worker qualifies as a redundancy. Furthermore, significant unilateral changes to essential elements of an employment contract by the employer, to the detriment of the employee ,and for reasons unrelated to the individual employee, also qualify as redundancies.
The EFTA Court then delved into the procedural obligations under the Directive, particularly the requirements for consultation and notification. Article 2(1) of the Directive mandates that employers contemplating collective redundancies must initiate consultations with workers’ representatives in good time, aiming to reach an agreement. This obligation arises before any decision to terminate employment contracts, ensuring that the objective of avoiding or reducing redundancies is not jeopardised.
Consequently, the EFTA Court emphasised that even strategic or commercial decisions that could lead to redundancies necessitate consultations, highlighting the preventive nature of this requirement. Moreover, Article 3(1) of the Directive requires employers to notify the competent national authority of any projected collective redundancies. This notification must include relevant information about the redundancies and the consultations with workers’ representatives. The EFTA Court clarified that this obligation arises at a later stage than the consultation requirement, and only applies when the employer intends to make collective redundancies.
The EFTA Court’s judgment thus clarified that significant unilateral changes to essential terms of an employment contract by an employer, to the detriment of the employee and for reasons unrelated to the employee, could be considered a dismissal under the Directive.
The judgment thus provided the Court of Appeal with a detailed interpretation of the Directive’s provisions on collective redundancies and its application to the specific case, emphasising the procedural safeguards that must be observed.
The Judgment of the Court of Appeal
Following the judgment of the EFTA Court, the Court of Appeal applied that judgment of the EFTA Court, stating that the termination of fixed overtime agreements by the National University Hospital based on the interpretation that the term “redundancies” in the national law included significant unilateral changes to essential elements of employment contracts, such as fixed overtime agreements.
For the Court of Appeal, that was so, even if these changes did not result in the complete termination of employment.Accordingly, the Court of Appeal emphasised that the procedural requirements for collective redundancies, including consultations with workers’ representatives and notifications to the appropriate national authority, should have been followed.
Consequently, the Court of Appeal found that the Iceland had failed to comply with the procedural obligations mandated by national law, thereby siding with the applicants.
Judgment of the Supreme Court of Iceland
The judgment of the Court of Appeal was appealed by Iceland to the Supreme Court of Iceland. The Supreme Court delivered its judgment on 18 September 2024.
The Supreme Court ruled that the national law giving effect to the Directive does provide protection for public employees against collective redundancies. For it, public employees are entitled to the same protections against collective redundancies as private-sector employees, despite the specific provisions of other national law on the rights and obligations of public employees.
However, the changes made by the state to the employment terms of the affected employees did not constitute significant changes to the essential terms of their employment contracts. Therefore, the state’s actions did not amount to collective redundancies under the law, and the plaintiffs’ claims were dismissed. For the Supreme Court, the state is permitted to change work duties, without it being considered a termination of the employment contract.
When it came to the question of EEA law and the judgment of the EFTA Court, given the Court of Appeal had faithfully applied the judgment of the EFTA Court, the Supreme Court highlighted the importance of the EFTA Court’s ruling in interpreting EEA law and ensuring its consistent application across the EEA.
To try and smooth out the obvious problematic issues that arise, the Supreme Court appeared to be at pains to state that the factual assessment by the Court of Appeal was, in fact, incorrect. And given the facts were wrongful put by the Court of Appeal, the Supreme Court therefore said the EFTA Court was not necessarily incorrect.
Contrary to the Court of Appeal’s judgment, Supreme Court of Iceland concluded that the changes made by the state did not constitute significant changes to the essential terms of the employment contracts. Therefore, they did not amount to collective redundancies as defined by national law, as they were not substantial enough to be considered dismissals, and that the affected employees retained their employment under new terms that were not significantly detrimental.
Analysis
The EFTA Court provided a broad interpretation of the Directive to ensure comprehensive protection for employees, emphasising the importance of early consultation and notification.
The Supreme Court of Iceland, however, while acknowledging this interpretation of the EFTA Court as delivered to the Court of Appeal, determined that the specific facts of the case did not meet the criteria for collective redundancies.
Thus, according to the Supreme Court, its own final judgment was consistent with the EFTA Court’s judgment, as it applied it in a way that reflected the particular correct factual circumstances of the case.
Read the judgment of the Supreme Court
The judgment of the Supreme Court of Iceland in Mál nr. 3/2024, Iceland v Association of Chartered Engineers in Iceland, the Computer Scientists’ Union, and the Pharmaceutical Society of Iceland can be read here.