There are a multitude of reasons why an employer may find it necessary to alter their employees’ terms and conditions. However, changing an employment contract is not a straightforward procedure, with several associated legal issues. We outline what employers should be aware of.
Legal issues of changing an employment contract
Changing employees’ terms and conditions can be contentious. Employers need to prepare carefully for such a process and ensure they have plenty of time to implement the changes in order to minimise legal risk.
A rushed or botched approach to changing an employment contract risks not only significantly damaging staff morale but also potentially gives employees the opportunity to bring legal claims including: constructive dismissal, discrimination and, depending on the numbers of employees affected, awards for a failure to inform and consult.
Contractual terms in an employment contract cannot be changed unilaterally by an employer (i.e. without the agreement of the employee) unless this is permitted by the contract itself. Where the contract does not contain such a power, changes can only be made with the consent of the affected employee.
Why might an employer make contract changes?
There are a variety of reasons why an employer may seek to change employment terms, including:
- to harmonise different terms and conditions which have arisen over time in order to standardise contracts
- a business reorganisation
- as a result of the promotion of the employee
- to introduce greater protection for the business e.g. in relation to confidential information
- as a result of legal changes
- in order to save money in difficult economic situations
The employer needs to be clear from the outset why it is seeking to change terms so that its actions are not perceived as being arbitrarily carried out, for no good reason. An employer should be able to justify the changes if challenged and collate supporting evidence to share with employees and their representatives, where appropriate.
Contractual or non-contractual term?
The employer should be clear as to the status of the term it is trying to change – namely, is it a contractual or a non-contractual term? If it is the latter, the employer will be free to change this without seeking the agreement of employees. Workplace policies such as those contained in staff handbooks are often stated to be non-contractual in order to give the employer the discretion to update them quickly and easily (i.e. without getting the agreement of employee) when it needs to do so.
When drafting a new staff handbook or workplace policy, employers would be well advised to state very clearly that these are intended to be non-contractual and not to confer any enforceable contractual rights on employees.
Types of legal risks for employers
Changing contractual terms is fraught with potential legal risks for an employer. The way in which this is handled can provide fuel to employees who wish to engage in litigation.
Employees are likely to be naturally suspicious and react negatively when changes to terms and conditions are mooted. Those who are determined to object to the change may be able to on the basis that it is a breach of contract if the situation is not legally analysed beforehand, and a comprehensive implementation plan drawn up and followed. Taking legal advice at the outset can prove to be a good investment if it prevents claims being made (or at least enables an employer to defend any claims robustly).
Employees may argue that the way in which the employer has behaved in trying to implement the change is itself a breach of the implied term of trust and confidence. This would entitle them to resign and claim constructive dismissal.
Where an employer feels that it is proposing reasonable changes, but it is unable to secure the agreement of a minority of employees, it may decide it has no option but to dismiss and immediately offer to re-engage those who refuse to agree to the contractual changes.
There is a risk of an unfair dismissal claim in such circumstances and it is vital to follow a fair procedure (including consulting collectively if 20 or more employees are likely to be affected).
In some circumstances, the change to the employment contract may be challenged as being indirectly discriminatory on the grounds of sex, age, disability etc. This could happen where the new term disadvantages, for example women (because of childcare responsibilities), disabled people or minority ethnic employees.
Flexibility within the relevant clause
Sometimes it is not necessary to amend the contract of employment because the relevant clause is written in such a way that it already allows the employer some flexibility. Examples of this might be found in a duties clause which is very broad, or a place of work clause which requires a certain level of mobility from the employee.
Where the employer is seeking to change a clause, which does not have flexibility already written in, it may seek to rely on a free standing flexibility clause which permits the employer to unilaterally vary the contract from time to time without agreement. However, such clause should be approached with caution.
Relying on flexibility clauses
Free standing flexibility clauses should be relied upon by employers with extreme caution. The courts are reluctant to enforce such clauses and allow employers a lot of latitude to force changes onto employees who are perceived as being in a weaker bargaining position.
Any such clause must be very clearly drafted, as any ambiguity will be construed against the employer.
In the absence of such an express flexibility clause, it is rare for the court or tribunal to imply a power to vary the contract.
Consent to changing an employment contract: implied or express?
If the employer wishes to change a term that does not have flexibility built in and there is no general flexibility clause, then it will need to obtain employees’ consent. The question then arises as to whether the employer needs to obtain express consent, or whether it can rely on implied consent.
For uncontroversial changes, an employer may be happy to rely on implied consent. if the employee, in full knowledge of the change, carries on working happily and drawing their salary, they can be assumed to have agreed to the change i.e. this is implied by their conduct. An obvious example would be a pay rise.
For changes which are less beneficial, an employer may still not require express consent to be given but may make a general announcement and say that if objections are not made, employees will be taken to have agreed.
However, the safest course of action for an employer will always be to get express consent, in writing, signed and dated. This is particularly the case where the change will not immediately impact an existing employee, for example a new restrictive covenant that will apply only when they leave employee or a new redundancy scheme that won’t kick in unless the employee is dismissed for redundancy. Ideally, such changes will be linked to promotions or pay rises.
Unilateral change: fire and re-hire
Where consent is not forthcoming from employees, an employer may decide it is vital to go ahead with the changes (perhaps in a difficult financial situation). The employer’s only option will then be to dismiss employees who refuse to agree and offer to immediately re-engage them on the new terms and conditions.
However, there is a trap for the unwary employer in such scenarios. Due to the wide definition of “redundancy” in the relevant legislation, a dismissal for failing to agree to new terms and conditions will trigger collective consultation with employee representatives (be that existing trade union representatives or those elected especially for the purpose) where more than 20 employees are affected.
If an employer fails to consult collectively before dismissing employees, it risks claims in the employment tribunal and protective awards of up to 90 days’ actual pay per affected employee.
Top tips for changing an employment contract
The key for employers to successfully changing terms and conditions is:
- to take professional legal advice early to understand your situation and the risks
- plan adequately and have a comprehensive timetable in place before you start
- disclose all relevant information and explain fully why you are doing what you are doing
- follow the correct procedure with care; don’t try and cut corners
- consult with individuals and employee representatives where necessary
- allow adequate time; don’t try and rush the process
- make sure you get the admin right. Ensure all new/amended contracts are signed, dated and properly filed
Ultimately, proper consultation with employees should enable employers to be confident that employees are impliedly consenting or will give their express consent to them changing the employment contract.
Consultation is a two-way process and involves employers considering and replying to any representations made by employees or their representative. This process takes time and cannot be rushed.
It should be noted by employers that special legal rules about consultation (and minimum periods of consultation) apply when the change involves an alteration to the pension scheme such as closing a scheme, changing benefits and accrual rates or amending eligibility requirements.
In the worst case scenario, where an employee does not agree to a change in their terms and brings legal proceedings, employers will be in a very good position to defend such claims if they have behaved reasonably throughout and have given employees adequate opportunity for consultation.