Norway: New Ruling from the Supreme Court – Legal Rules for Termination Under Severance Agreements for Senior Executives

Introduction

The Norwegian Working Environment Act allows (only) the chief executive of the undertaking to relinquish the statutory employment protection in a prior agreement in exchange for compensation on termination. On 30 January 2026, the Supreme Court rendered a new judgment in a case between a municipality and a former municipal chief executive. The Supreme Court’s ruling provides clarification on the applicable requirements when an employer decides that a chief executive must step down pursuant to such an agreement.

 

Case background

The case concerned a municipal chief executive who, upon employment, had waived her rights under Chapter 15 of the Working Environment Act in exchange for severance pay, cf. section 15-16 (2). After only a few months, the municipal council made a decision that she should step down immediately with severance compensation.

 

The Supreme Court’s assessment

The key question before the Supreme Court was whether there are any legal limitations at all on the employer’s decision to terminate an employment relationship if the employee has waived the statutory employment protection in exchange for severance pay.

Further, the Supreme Court considered whether the general standard of reasonableness that applies to the employer’s management prerogative also applies to such decision to resign under section 15-16(2) of the Working Environment Act.

The Supreme Court held that the employer is subject to “certain minimum procedural requirements” even when making a decision on resignation under section 15-16 (2) of the Working Environment Act. For instance, the employee should be notified if the employer is considering enforcing the severance agreement and be given the opportunity to comment. Absence of such notice will, however, not affect the employers right to enforce the agreement.

The Supreme Court also stated the courts may assess whether the decision on resignation constitutes an abuse of the employer’s right to govern, including whether the decision appears arbitrary or is based on irrelevant considerations. The courts may also assess whether the decision is based on incorrect facts.

Finally, the Supreme Court clarified that an agreed resignation with severance pay does not constitute a “dismissal” under labour law, meaning that the special procedural rules for individual decisions under the Public Administration Act do not apply. This is particularly significant for employers in public sector.

The Supreme Court concluded that the municipality had not acted negligently in a manner giving rise to liability. The appeal was therefore dismissed.