Changing Terms & Conditions of Employment
Occasionally, changing terms and conditions of employment for employees is necessary for the requirements of the business. Any contractual change that is to benefit employees is likely to be agreed by them and so mutual agreement to the change is in place. Examples may include a salary increase or a provision of additional holiday entitlement. However, there are a few employers that don’t realise the risks to the business of changing terms and conditions of employment unilaterally (without agreement from their employees).
Contractual Obligations in Respect of Terms and Conditions
Essentially, once employees have agreed to the terms and conditions surrounding their employment, an employer cannot change this unilaterally to suit the business requirements without first obtaining consent from the affected employees, either individually or through a collective agreement.
An employer must remember the employment contract may not be the only document which constitutes the employment contract – for example, an employee handbook or a bonus scheme may be part of the contract too.
An employer should always start with the employment contract to understand the legal obligations to which it is bound by and identify any clauses allowing for change. If any such clauses do allow for change, maybe a flexibility or mobility clause, it is important to identify how unambiguous they are. Consideration must also be given to the employer’s behaviour and reasonableness in enforcing any express clauses; to force even an express term without a degree of reasonableness may risk a claim from the employee, see United Bank v Akhtar .
It may be that the employer has to make significant changes to the business which, in turn, affects a number of employees by impacting on their terms and conditions of employment; clearly this would present a higher degree of risk to the business than it would when dealing with an individual.
However, we know case law is an important aspect when considering how an employer interprets employment legislation. In Bateman & others v Asda Stores Ltd, the EAT allowed for the employer (Asda) to make unilateral changes to employees’ contractual terms, specifically their pay, which we have to remember amounts to a ‘fundamental part’ of an employment contract. The employee handbook had a clause referenced within which amounted to the ‘variation’ and of which was subsequently incorporated into employees’ contracts.
Business Case for Change
There will be occasions where the business needs to dictate a necessary change to employee terms and conditions of employment such as new ways of working due to updated or new technology, inclusion of new clauses to protect the business, such as clauses restraining an employee from particular actions during and after employment (this opens up considerations of its own) or an internal restructure. In these circumstances, the employer will have an obligation to manage the process fairly and reasonably in addition to ensuring it meets its duty of legal compliance.
Consider why an employer may be in this situation; is it due to TUPE, working practices, a change of working hours or days, or are there many more potential reasons? This is just a quick overview.
If an employer is in this situation, consideration should be given to why the change is necessary; is there a genuine, solid and strategic business reason behind it and is it valid.
If employees do not agree to the proposed changes to their employment, an employer has the opportunity to dismiss them from their current employment contract by serving notice (or if the contract allows paying in lieu of notice) and re-engaging them on a new contract which has incorporated the changed terms.
The number of employees affected will determine which direction an employer must take to manage the process. If there are 20 or more employees, then a collective consultation will be necessary under s.195 Trade Union and Labour Relations (Consolidation) Act 1992 and the timeframes of 30 and 45 days before a dismissal can take place will apply, depending on the numbers involved.
The Risks of Unilaterally Changing Terms and Conditions of Employment
When an employer is in a position which necessitates the need to unilaterally change employees’ terms and conditions of employment, it will run the risk of several claims regardless of how well it manages the process. Therefore, it is essential that the employer can demonstrate it has acted fairly and reasonably.
The potential claims are:
- Breach of contract
To be submitted to an employment tribunal within 3 months of termination of employment, limited to £25,000 or 6 years to the civil courts;
- Unlawful deduction of wages (if this is the result of a unilateral change);
- Constructive unfair dismissal due to a repudiatory breach of contract;
- Unfair dismissal (runs a higher risk when consultation has not taken place);
- Redundancy (if the change is so significant the employee’s role no longer exists).
However, the dismissal of the old contract may be justified when there is a valid requirement for the change and, in this case, it may amount to a fair reason for dismissal due to an SOSR (some other substantial reason) dismissal.
- Unless there is an express term allowing for a unilateral change, the employer will risk a claim against it.
- Even with an express term, changing terms and conditions must be managed fairly and reasonably with consultation.
- Potential claims to an employment tribunal will be significantly reduced where the employer has followed a fair procedure.
This has just been a quick overview to remind employers about the risks of unilaterally changing terms and conditions of employment and not properly managing changes which affect employees’ contractual clauses.