New Supreme Court Ruling Clarifies Key Issues Concerning the ‘Dismissal’ of a Chief Executive Who Has Waived Statutory Employment Protection

On 30 January, the Supreme Court delivered its judgment in a case between a former chief municipal executive and the municipality, concerning the legality of a municipal council decision requiring her to step down. In her employment contract, the chief municipal executive had waived her statutory employment protection in exchange for the right to severance pay. She sued the municipality for damages, arguing that although she had waived her employment protection under Chapter 15 of the Working Environment Act, she had not waived the protection afforded by other legal rules. She further argued that the municipality’s handling of the matter violated both the general employment law standard of objectivity and the Public Administration Act’s rules on individual decisions, and that these breaches constituted negligence, entitling her to compensation.

The Supreme Court ruled in favour of the municipality.

The Supreme Court held that the municipal council’s decision did not constitute an individual decision under Section 2, second paragraph, of the Public Administration Act, and that the Act’s rules on individual decisions therefore did not apply. The Court further stated that within the scope of the Working Environment Act, there is little need to supplement the boundaries of managerial prerogative with non-statutory principles on public administration, and that it could not identify any instance in the present case where such non-statutory principles imposed different or stricter requirements than those arising from non-statutory principles of employment law.

The Supreme Court further noted that the parties agreed that an employer’s decision to terminate an employment relationship is grounded in the employer’s managerial prerogative, and the Court concurred that the employer is accordingly subject to certain minimum procedural requirements. However, according to the Supreme Court, the content of these requirements must be adapted to the employer’s discretionary freedom and the particular interests that Section 15-16, second paragraph, of the Working Environment Act is intended to protect, so as not to disturb the balance of the contractual relationship. The threshold for setting aside such a decision must therefore be high. The Court provides only partial guidance on how high this threshold is. The Court indicated that prior notification (i.e., the right to be heard) should be given, but that this is merely a procedural guideline rather than a mandatory requirement. The Supreme Court also stated that the courts may review whether the decision is based on materially incorrect facts if the decision to step down is concretely reasoned. However, the Court did not appear to establish any requirement to provide reasons. In our view, the statements and examples provided by the Supreme Court suggest that significant circumstances would be required before an employer’s decision requiring a chief executive (who has waived statutory employment protection) to step down would be deemed to violate non-statutory principles of employment law.

Key takeaways:

• For the public sector, it is now established that the Public Administration Act’s procedural rules for individual decisions do not apply to the “dismissal” of a chief executive who has waived employment protection under Section 15-16 of the Working Environment Act.
• It is substantially established that non-statutory principles of administrative law do not extend beyond or otherwise “supplement” non-statutory procedural rules of employment law. However, the Supreme Court did not determine whether this applies generally and, in all situations, accordingly, exceptions may exist.
• It is established that an employer’s decision requiring a chief executive (who has waived statutory employment protection under the Working Environment Act) to step down is subject to non-statutory employment law standards of objectivity, which require that a decision must not constitute an abuse of managerial prerogative or be based on materially incorrect factual premises. However, the threshold for finding these rules to have been breached is high.

It is worth noting that the Supreme Court did not address whether a waiver of employment protection under Section 15-16 of the Working Environment Act also encompasses the special protections under the Act relating to pregnancy, leave of absence, illness, and military service, nor the Act’s protection against discrimination or protections in the event of a transfer of ownership of undertakings. These questions therefore remain unresolved.