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Tricky Issues: How can an employer go about changing contracts of employment?

In the latest article for our Tricky Issues series, we explore what employers need to consider when seeking to change contracts of employment and the legal risks which may arise when those changes are not agreed by the employees concerned.

A contract is a binding agreement between its parties and cannot normally be amended without the express consent of all signatories. While this principle holds true for contracts of employment, it is possible for employers to amend contract terms in certain circumstances even in the absence of employee agreement.

Amendment by consent

Ideally, any contractual change would receive the consent of the employees concerned. Depending on the nature of the change, this may be a straightforward matter. As we emerge from the pandemic, we are seeing several clients move to permanent hybrid working arrangements which ideally should be reflected in contracts of employment. Most employees are welcoming the move to more flexible working arrangements and, as such, these variations tend to be readily accepted.

However, in most circumstances, a change of contract terms may not have a benefit for employees or may even be actively detrimental. Some changes may be relatively neutral, such as changing the payday to a different day of the month, while other common and more acrimonious changes include changes to hours of work, rest breaks, shift patterns and cuts to pay and benefits.

Employers should always seek consent to significant variations. Not only does meaningful consultation on changes and the reasons for them increase the likelihood that employees will agree, but it also mitigates the legal and financial risks associated with pushing through a change and/or dismissing and reengaging employees who do not consent.

Implied consent

For more minor changes to contracts, it may be possible to rely on implied consent. Employers might choose to inform employees of the impending change and invite them to express any concerns. In the absence of express objections, the change is likely to be implicitly accepted after employees have been working under the revised terms for a reasonable period. However, employers need to be cautious of relying on implied consent, particularly in situations where the varied term does not have an immediate impact, such as introducing a mobility clause which the employer does not try to rely on for several years. In these circumstances, it is likely to be difficult to establish implied consent to a change which has not yet come into play.

Unilateral variation

In circumstances where employers have not managed to agree a change with employees, they might choose to unilaterally push through the change.

This action constitutes a breach of contract, but, depending on the nature of the change, may not have significant legal consequences.

Relatively minor changes of contact which do not go to the heart of the employment relationship and do not cause financial loss may ultimately be implicitly accepted as employees continue to work to the new terms. Such changes are unlikely to constitute a fundamental breach of contract which might form the basis of a constructive unfair dismissal claim.

However, employers should exercise great caution when considering unilateral variation as the line between a breach that is fundamental and a breach that is not fundamental is rarely clear. Where a fundamental breach does occur, the employees can either resign and claim constructive dismissal or continue to work under protest and bring an unlawful deduction of wages claim in the Employment Tribunal or a breach of contract claim in the civil courts.

Dismissal and reengagement

Employers may, after a full and meaningful consultation, elect to dismiss an employee who has not consented to the change and to immediately offer reengagement on amended terms.

This approach is a difficult one for the employee/ employer relationship and an employee may pursue a claim for unfair dismissal in these circumstances regardless of whether they agree to remain employed and work to the new terms.

While employees in such circumstances may have a reduced ability to pursue a compensatory award for loss of earnings (as their employer will have offered an immediate opportunity for them to mitigate their losses), employees could nonetheless pursue a claim in the Employment Tribunal for a finding of unfair dismissal, a basic award and any loss of earnings or other losses arising from the unfair dismissal.

Deficient consultation processes contribute to the risk of a Tribunal finding that such a dismissal is unfair on procedural grounds.

It is also critical that employers who may need to dismiss and reengage 20 or more employees bear in mind the legal obligation to consult collectively under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) in order to avoid liability for protective awards.

There has been much in the press recently about such “fire and re-hire” tactics in the context of the pandemic and the need for many employers to change terms and conditions. Whilst such an approach has been criticised, the government has confirmed that it will not yet legislate to prevent this taking place but instead has asked ACAS to prepare more detailed guidance on how and when dismissal and re-engagement should be used. Employers are well advised to consider this guidance when contemplating changing contracts of employment in this way.

Other forms of redress

In circumstances where the employees are not dismissed, they have three key methods of objecting to breaches of contract:

  1. Performance of existing terms: Employees may refuse to work to the new terms, insisting on working to their existing shift pattern, break times etc.

  2. Stand and sue: Where a breach has caused a financial detriment, an employee has the option to “stand and sue”, remaining in employment while pursuing a civil claim for breach of contract. Such a claim would include all future losses flowing from the employer’s breach.

  3. Constructive unfair dismissal: Employees who consider the breach of contract to be fundamental to their relationship with their employer may resign from their employment and seek to claim constructive unfair dismissal in the Employment Tribunal.

Top tips for employers

Get the contract right: Carefully consider the terms of your contract of employment at the outset of the employment relationship to avoid clashes over terms which could have been agreed before the employment began.

Provide for variation: Incorporate a variation clause into your contracts. While such clauses will not cover significant changes of terms, they can be helpful for statutory updates and minor amendments.

Consult informally: Give employees notice of any proposed changes and consult informally about the issues first. You may be able to reach agreement without embarking on a formal process.

Consult formally: Any formal consultation process should be robust and meaningful. Consider scheduling at least two consultation meetings, send clear invitations and follow up correspondence setting out the issues and what needs to be/was discussed and offer the right to be accompanied and the right of appeal.

TULRCA: Bear potential collective consultation obligations in mind if 20 or more employees may be dismissed and reengaged.  

Balance the advantages and risks: Consider the potential financial consequences of an acrimonious breach of contract or constructive unfair dismissal claim. Weigh these up against the benefits of the proposed change of contract and only consider dismissal and reengagement as a last resort.

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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