We Gotta Start Makin’ Changes - Changing Terms & Conditions of Employment
Associate solicitor Hazel Phillips looks at the issues around changing employment terms and conditions.
Employers are not immune from all the talk of the need to take “austerity measures”. There may still enough work to be done but customers are looking to obtain that work for less cost and rather than looking at redundancies many employers are looking again at the possibility of changing terms and conditions to make themselves more competitive.
Unfortunately, unless the employees agree to the change then this can be a long and difficult process so before deciding whether variations will make any difference, employers should review the existing contractual arrangements to see whether there is any scope for manoeuvre within what is already there.
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 decrease wages without consent.
Even if the contract contains a ‘catch-all’ variation clauses which looks as if it will permit large sections of the contract to be varied, such clauses 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 mobility clauses and those which allow an expansion or change of duties will not give the Employer “carte blanche” to do whatever they want. Unless employers are careful when looking to exercise such rights they might breach the duty of mutual trust and confidence. In order to avoid this, flexibility clauses need to be used reasonably. For example, an employer is unlikely to be able to move an employee from London to Fort William on 3 days’ notice or to change someone from a managerial position back to a caretaker without consultation and 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. Employers also need to be careful not to 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 also need to remember to involve, from an early stage, any recognised trade unions in negotiations about possible changes. Changes agreed in this way can even apply to employers who are not members of the union conducting the negotiations.
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.
Employees often choose not to resign in the face of such changes, and they sometimes do just keep working without complaining, but it is becoming more common for employees to work under protest. This means making it known to the employer that they do not accept the changes and 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 leaving the door open for a disgruntled employee to bring an unfair dismissal claim.
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 the termination of employment and the offer of re-engagement 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 is unlikely to be viewed as fair.
Where termination and re-engagement is being considered for more than twenty employees, the collective consultation procedures under s.188 Trade Union and Labour Relations (Consolidation) Act 1992 will also need to be considered. If the reason for looking at changes is that employees have been transferred to a business under the Transfer of Undertakings (Protection of Employment) Regulations 2006 then a different set of rules will need to be followed. These are both complex areas on which employers should take specific advice.
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 just to make sure that your proposals, and the procedures you have chosen to follow before making those changes are not going to put you at risk of unfair dismissal or constructive dismissal claims.All Factsheets