The terms of employment contracts often need to be changed in response to business needs.
We outline how employers can go about this below and the risks involved.
Why change the terms of an employment contract?
An employer may want to change the terms of its employment contracts for a variety of reasons.
They may need to cut costs by reducing employees’ pay or benefits, or they may need to change employees’ duties to better reflect the new operations of the business.
Changes to the employment terms must be based on genuine business need.
This allows the employer to defend potential claims and help achieve employee agreement.
Things to consider before changing employment terms
Implementing changes to employment terms can be a lengthy process.
Even if the changes are minimal and undisputed, employers should be transparent in communicating the changes to employees and considering any feedback.
If an employer plans to dismiss and re-engage 20 or more employees who will not agree to the changes, they must conduct a formal collective consultation, which can be time-consuming.
An employer in this situation should begin the consultation as soon as possible to ensure that employees are informed promptly of the changes, and enough time is allocated to address any concerns that employees raise during the process.
Risk of discrimination
Employers must think about the consequences of the changes they plan to make to identify risks of potential discrimination and equal pay claims.
For example, changing working hours in a way which particularly disadvantages employees with childcare responsibilities could constitute sex discrimination, as this would have a greater impact on female employees.
If a risk of discrimination arises, employers should explore other options and only proceed if the changes are justifiable.
Employers must check to see if any employees have been transferred under TUPE as this will restrict the changes that can be made to the terms of their contract.
The general rule is that changes to the terms and conditions of transferred employees’ contracts can only be implemented because of economic, technical or organisational reasons that involve changes in the workforce.
This would include changing the number of staff, their functions, or the place of work.
There is not a specific cut-off point after which TUPE will no longer apply.
However, the longer after the transfer that changes are proposed, the stronger the employer’s argument that the changes have no connection to the transfer.
There is also a smaller chance that employees will bring a claim under TUPE.
If there is a clause in the employment contract that allows changes to be made to employment terms, such as a flexibility or mobility clause, employers will be permitted to make contractual changes under the TUPE Regulations.
Even in this case, employers must still follow the correct procedure to implement the changes.
How can changes be introduced?
There are 4 main ways in which an employer can go about changing terms of employment:
- Get express consent from the affected employees;
- Use a contractual variation clause;
- Dismiss and re-engage employees;
- Make the change unilaterally.
The details of each of these options will be outlined below.
When implementing changes to the employment terms through the first and second options, the employer should send employees a letter outlining the changes and when they will occur.
This letter should require employees to sign and return it to the employer to demonstrate that they acknowledge and understand the changes.
The employer must also confirm in writing any changes made to the employment particulars in the written statement of terms and conditions within one month of implementation to avoid liability in unfair or wrongful dismissal.
1) Obtaining the express consent of employees
This is the safest and most advisable route as it protects against the risk of claims and is most likely to maintain a healthy employment relationship moving forward.
The verbal agreement of employees is sufficient to implement changes to employment terms.
However, we highly recommend that employers obtain written consent to avoid uncertainty and provide evidence in the event of future disputes.
Obtaining employees’ consent to changes in their employment terms will be easiest when the changes are beneficial to them.
When changes are less favourable to employees, effective communication and consultation will be essential in obtaining employees’ agreement.
Communication and individual consultation
Employers must write to the affected employees, informing them of the proposed changes, the reasons for the changes and the date of implementation.
Employers should also outline the likely effects on employees and be open to their responses.
An effective way to seek agreement would be to highlight the negative consequences that will be avoided by making the relevant changes.
For example, if the change in terms is necessary to cut costs and avoid potential redundancies, employees are likely to consent once they are made aware of the circumstances.
Employers can also offer support to assist employees in adapting to the changes, such as phasing them in gradually.
Another way of getting employees to agree is offering incentives.
Incentives do not have to be financial but could include other benefits to employees, such as flexible working.
Individual consultation meetings can be an effective way to understand individual employee’s objections to the change in terms and discuss ways to obtain their agreement.
If the employer recognises a trade union under a collective bargaining agreement, they can consult with the relevant trade union to obtain consent to the change in employment terms on behalf of the employees.
This will allow the employer to obtain the consent of all employees, even if they are not a member of the union, as they will be bound by the terms of the collective bargaining agreement if it is incorporated into their employment contract.
2) Using a contractual variation clause
This approach can be adopted where the employment contract contains an express clause, such as a flexibility clause or a mobility clause, allowing the employer to change the terms and conditions.
Variation clauses are only enforceable if they are reasonable, and they cannot be used generally to implement any changes the employer wants.
Variation clauses are more likely to be successful if they concern a specific contractual term, e.g. hours of work, place of work etc.
Tribunals will assess the enforceability of variation clauses in favour of employees, so an employer must ensure that the wording of any variation clause is unambiguous, and it is applied in a reasonable way.
For example, an employer could rely on a flexibility clause to extend the duties of an employee to cover the absence of a colleague, provided the employee has the relevant qualifications.
However, it would not be reasonable to use a mobility clause to change an employee’s place of work to an office in a different part of the country without sufficient notice and financial support.
It is advisable that even if an employer has a clear variation clause, they still conduct a consultation and seek the agreement of the concerned employees.
This will support the employer’s argument that they applied the variation clause reasonably if employees bring any constructive dismissal claims.
3) Dismissal and re-engagement
This is the last resort option to apply when the employees do not consent to the change in employment terms, and there is no variation clause in the employment contract.
In this situation, employees generally choose to agree to the new terms rather than refuse to sign the amended employment contract and end their employment.
However, employers must communicate and consult effectively with the affected employees and their representatives if they are forced to take this route.
Suppose an employer wants to dismiss and re-engage 20 or more employees. In that case, they must consult with the appropriate employee representatives in ‘good time’ or at least 30 days before the first termination.
If the changes involve 100 or more employees, the representatives must be consulted at least 45 days before termination.
Where there is a recognised trade union, the appropriate representatives will be the trade union representatives.
Otherwise, the employer may need to arrange elections for employee representatives.
Employers with a strong business case for changing employment terms should invite the employee representatives to a formal consultation meeting ‘with a view to reaching agreement’.
During the meeting, the employer should consider any proposals suggested by the representatives.
The employer should also explain that if employee agreement is not obtained, they will be left with no choice but to dismiss objecting employees.
The penalty for failing to comply with the formal consultation obligations is a protective award of up to 90 days’ pay for each employee. Therefore it is essential that employers follow this procedure correctly.
Individual consultation on dismissal
Employers should also hold an individual meeting for each objecting employee.
These meetings should be conducted in a similar way to a disciplinary or grievance hearing.
The employee should be given the opportunity to respond, allowed to be accompanied and be able to appeal the decision if they wish.
Following this procedure will help the employer to demonstrate that they have carried out a fair process.
Protecting against claims
As this option terminates the employment contract, eligible employees will be able to bring unfair dismissal and wrongful dismissal claims.
Unfair dismissal claims
To defend an unfair dismissal claim, the employer must be able to demonstrate that they dismissed and re-engaged the employee for “some other substantial reason”.
This means that any changes to the employment terms must have been introduced based on business need, and the employer must have implemented the changes by following a fair procedure.
Wrongful dismissal claims
To avoid any wrongful dismissal claims, the employer must provide employees with their contractual notice to end the previous employment contract.
The difficulty with this is that notice periods often differ between employees, but an employer will want the changes to be implemented for all employees at the same time.
A way around this would be to make payments in lieu of notice for some employees.
However, this would be more costly as in effect, it involves paying employees twice in respect of the same period.
4) Imposing changes unilaterally
This approach involves the highest level of risk due to its inevitable uncertainty and should be adopted cautiously.
Employers who vary employment contracts unilaterally leave themselves vulnerable to a variety of claims from their employees.
Stand and Sue
It is possible that employees will Stand and Sue, by remaining in employment while voicing their objection to the change of terms by bringing a claim in either breach of contract or unfair dismissal against the employer.
Breach of contract:
Employees who stand and sue are most likely to bring a claim for breach of contract and seek compensation from their employer.
The employee will need to show a specific breach of contract caused by the change of terms, which provides them with a monetary claim.
The employer would not be able to defend this type of claim by demonstrating that they acted reasonably by changing the terms in response to business need.
Employees can bring an unfair dismissal claim despite continuing to work for their employer if the change in terms constituted a fundamental breach.
This is because the employee is considered to have been dismissed by the fundamental breach ending their previous contract, irrespective of the employee continuing to be employed under the new contract.
This is often referred to as a ‘deemed dismissal’.
Leave and claim constructive unfair dismissal
Suppose the change of terms is sufficiently fundamental. In that case, an employee may be able to resign and subsequently bring a claim on the basis that they were constructively dismissed by the effect of the unilateral change in employment terms.
Waive breach of contract
Imposing new terms of employment without the agreement of employees will amount to a breach of contract.
However, employees may be considered to have waived the breach of contract and accepted the new terms if they do not act soon after they are made aware of the change of employment terms.
There is no set time period after which the breach of contract is waived, and each situation will depend on its facts.
The timeline in which the new terms are applied, and the employees’ delay in objecting to the changes will be relevant.
For example, if the employees have experienced the effects of the new changes for several months without objection, they will most likely have waived the breach of contract.
The safest and most effective way employers can change the terms of existing employment contracts is with the consent of affected employees.
However, in practice, this is not always possible.
Therefore, it is crucial that employers relying on a variation clause or implementing changes by dismissing and re-engaging employees still communicate and consult effectively with employees to protect against claims.