Varying Terms and Conditions of Employment Contracts
Before deciding whether variations will make any difference, all of the relevant terms of the employees(s) contract must be established. Although a contract of employment should be in writing, even if there is no written documentation the employee still has a contract with the employer. Similarly, even when written contracts are in place, terms may have been incorporated from other documents, (such as written policies or a staff handbook) or can have come into existence by conduct or by custom and practice.
Some contracts include clauses which allow the employer to make variations without consulting the employee. However, employers should be careful when trying to use such clauses as they are designed to cover minor amendments or changes in the law rather than being a mechanism to allow an employer to make fundamental variations without consent. ‘Catch-all’ variation clauses that permit large sections of the contract to be varied are unlikely to be enforceable so employers should only try to rely on amendment clauses if the clauses refer to, and are proposed to be used in respect of specific and limited variations.
Having said that, the contract may be flexible in other ways. If an employee’s job description has been drafted quite widely the employer may be able to achieve the required changes merely by expanding an employee’s role or duties to accommodate changing business needs.
A mobility clause (which states that an employee can be asked to work in a different area of the country or in any of several specified locations if required) is another example of a flexibility clause which can be of assistance to employers seeking to redistribute employees across a business in order to maximise use of resources.
However, the simple presence of flexibility clauses within a contract of employment is not sufficient to allow the Employer to do whatever they want. Employers should be careful that in exercising their right to move an employee to a different location or to expand someone’s role, that they do not breach the duty of mutual trust and confidence. This means that such clauses should be used reasonably and should not be used to move someone from Carlisle to Plymouth on 3 days’ notice or to change someone from a managerial position back to a lower level role without consent.
If the proposal is to change a fundamental term (e.g. pay, hours or even location) then, unless the employee gives consent to the change in writing, the employee could resign and claim constructive dismissal or could continue working under protest, making it known to the employer that they are reserving the right to make a claim for breach of contract in the future. Another option for the employee if the employer tries to force the changes through is to argue that such actions amount to an actual dismissal by the employer.
So that employers don’t end up being faced with such arguments, the first step should always be a meeting to gauge employee reaction to a proposed change; employers should never just assume the consent will be given. Often it will be difficult to gain the employee’s express consent to changes even in difficult times because the best changes for a business usually involve a reduction in pay.
If employees will simply agree to proposed changes then this is always the best option for both parties because if the employees are happy then the risk of litigation is low. However, employers should not put pressure on employees to agree (mentioning that without the changes redundancies may have to be considered could be a mistake) because any suggestion that the employee had no choice but to accept the change could result in successful constructive dismissal claims.
Employers do need to remember to involve, from an early stage, any recognised trade unions in negotiations about possibly changing terms and conditions. Changes agreed in this way can even apply to employers who are not members of the union conducting the negotiations: so long as the term has been legally and effectively incorporated, the employee will be bound to it.
Imposing new terms unilaterally
Employers who know that changes will be unpopular often want to try and impose variations without seeking employee consent. However, this is an extremely risky course of action. It is likely to lead to employee discontentment and, at worst, claims for breach of contract, constructive dismissal or even ordinary unfair dismissal. As stated above, in most cases, changes (particularly to wages and hours) can only be made with the consent of the employee.
Employees faced with a unilateral imposition of new terms do sometimes just accept the changes and continue working. In this scenario, the contract can be affirmed if an employee continues working without complaint for a significant period of time. However, employees often choose not to resign but, instead, continue working under protest on the basis that they do not accept the changes but formally make it known to the employer that they are reserving the right to make a claim for breach of contract in the future. If an employee waits too long the right to ‘stand and sue’ can disappear but employers should be extremely wary of employees who make such comments and would be best advised to enter into discussions with the employee(s) in question to see if a solution can be reached.
Dismissal and Re-engagement
In the event that an employee refuses to consent to new terms or works on under protest, and the contract offers no other route of variation, the employer could consider dismissing the employee(s) and then re-engaging them on the new terms. This is not the panacea it appears to be because it involves the employer proactively taking steps to terminate contracts of employment making the risk of unfair dismissal claims high.
In order to minimise the risks of such claims, the employer needs to be able to show that terminating the contracts and offering re-engagment on different terms was the only realistic option. If the changes can be shown to be necessary for the survival of the business (and not just a good way to cut costs) then a refusal to accept a proposed change could fall within the potentially fair reason for dismissal of “Some Other Substantial Reason” and may, therefore, give the employer a fair reason to terminate the contracts.
However, establishing a fair reason to terminate the original contracts is not enough. The employer also needs to show that their decision to do so was reasonable and that the procedure leading up to that decision was reasonable. This is a much harder test to satisfy and without significant negotiation, consultation, notice and a time within which an employee can decide to change their mind and accept the previously unacceptable without losing their job the decision to terminate will not be viewed as fair. This makes the process of termination and re-engagement long and arduous.
The next thing to consider is that, even with all of this consultation taking place, the three-step statutory dismissal and disciplinary procedure (SDDP) must be followed in order to avoid the termination being automatically unfair.
If the employer dismisses and offers to re-engage all the employees of a particular description or category then the SDDP can be avoided. However, despite the existence of this exception, following the SDDP should be given due consideration because it is rare that a Tribunal would consider the termination of an employee’s contract of employment as fair or reasonable without there having been a meeting to discuss it and without the employee having been given a right of appeal.
Where more than twenty employees fall within a particular category, the collective consultation procedures under s.188 Trade Union and Labour Relations (Consolidation) Act 1992 will also need to be considered. This is a complex procedure on which employers should take specific advice.
If the reason for looking at such options is that a employees have been transferred to a business under the Transfer of Undertakings (Protection of Employment) Regulations 2006 special considerations apply. These are not covered below and employers are urged to take specific legal advice in such circumstances.
At a time when businesses are looking to save money, varying employees’ contracts of employment can seem like an attractive way to cut costs whilst maintaining the skills and talents that the business will need to contribute to its success in the future. However, variation is fraught with potential pitfalls and should never be undertaken lightly. As with redundancies, the best advice is to take advice before starting negotiations with a view to making contractual changes just to make sure that your proposals are not going to put you at risk of unfair dismissal or constructive dismissal claims.
For further information on varying terms and conditions of contracts, contact Burnetts' employment law team on 01228 552222.
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Published: Thursday 2nd April 2009