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Joint and several liability for principals

Section 13 of the General Application Act – Joint and several liability for principals, enters into force on 1 January 2010, thus assigning joint and several liability to principals for the wage obligations of subcontractors in a contract chain in those areas which are covered by the General Application Regulations.

The employer is the party that is responsible for paying wages under the General Application Regulations. With the new amendment, the joint and several liability will take effect as soon as employees' wages are not paid properly. Employees then have the right to file a claim against any supplier upwards in the chain.

What is joint and several liability?
Joint and several liability means that the party who assigns a task (principal) is responsible for the obligations that the contractors down through a contract chain have to pay wages in accordance with the General Application Regulations. This means that all principals in a contract chain are liable "one for all and all for one" vis-à-vis employees at the very bottom of the chain who do not receive pay from their employer in accordance with the General Application Regulations.

The joint and several liability will apply within all sectors that have collective wage agreements for general application, such as the construction sector and for certain petroleum facilities on land.

The joint and several liability enters into force from 1 January 2010.

Link to Act relating to amendments to the General Application Act, etc. (joint and several liability, etc.) 

The liability is only effective for contracts that are entered into after this date. Contracts entered into in 2009 or earlier will thus not be affected by the requirement mandating joint and several liability for principals.

What can principals be held responsible for?
Principals can be held jointly and severally liable for wages and overtime compensation under the General Application Regulations, and holiday pay under the Annual Holidays Act. If the agreed wages are higher than the minimum wage that follows from the General Application Regulations, principals will only be responsible for the minimum wage.

When does the joint and several liability arise?
The joint and several liability arises when wages have fallen due for payment, but have either not been paid, or only partially paid. This will normally be the date stipulated for payment of wages under the employment agreement. Employees must submit a claim in writing within three months, with documentation, e.g. copy of the employment agreement, pay slips, timesheets, bank statements or other relevant documentation. The principal has a deadline of three weeks to pay. If there are multiple principals, employees are free to file such a claim against the party of their choice, without first submitting the claim to their own employer.

In a contract chain with multiple responsible principals, it may be difficult to ascertain what is disbursed to an employee who claims joint and several liability. To ensure that the other principals receive sufficient information about disbursements, any principal that has received such a claim shall send a notice in writing to the other principals within two weeks. This is, in part, to avoid double payments, and so that all principals are aware that a claim has been filed against a principal with which they share joint and several liability.

Principals that receive and discharge such a claim are entitled to distribute the liability among the other principals (recourse). In contractual relationships with multiple guarantors, this follows from long-standing case law. The same must presumably apply to joint and several liability for principals. Nevertheless, it is recommended that provisions be included in any contracts that allow for any such liability to be allocated among all principals in the contract chain. In addition, it may be relevant for principals to retain a portion of the contract compensation as surety for any potential joint and several liability.

Joint and several liability and liquidation
In the event that an employer goes into liquidation, employees must submit their wage claim to the Norwegian State wage guarantee scheme. Employees cannot choose whether to submit the claim to the wage guarantee scheme or a party who is jointly and severally liable. If the principal has discharged the employee's wage claim, the principal is entitled to enter into the employee's claim against the winding-up estate.

Role of the authorities
Each employee must determine whether he/she has a claim to file vis-à-vis principals. The Norwegian Labour Inspection Authority and the Petroleum Safety Authority Norway (PSA) can provide guidance regarding this provision.

The Norwegian Labour Inspection Authority and the PSA are responsible for carrying out supervision to ensure compliance with the wages and working conditions that follow from the Regulations relating to general application of wages, etc. This takes place by means of the regular policy instruments, orders, fines and halting activity.

However, the supervisory authorities cannot order payment of wages, as this is regarded as a private law matter, and therefore falls outside the tasks of the supervisory authorities.

Contact information:
Roar Andersen, principal engineer

Email: roar.andersen@ptil.no