With the Government Job Retention Scheme (furlough) coming to an end in just over a month, we are facing very uncertain times. Employers across multiple sectors are having to make some extremely tough decisions in the hope to survive the coming months and face and any kind of viable future. In an attempt to reduce or mitigate against redundancies, one option available is to consider whether certain employees terms and conditions can be renegotiated, either temporarily or permanently.
Changes of this nature can be made for many reasons, such as changes to hours, pay rates, bonus and commission structures. Such changes to employees terms and conditions are often brought about by changed economic circumstances resulting in a need to reorganise the employer’s business.
Options for Businesses
In these circumstances an Employer has three principal options:
- To seek agreement to the changes and dismiss those employees who refuse to agree. The employees who are dismissed may have claims for unfair dismissal and breach of contract.
- To terminate the existing employment contracts and offer re-engagement on the new terms. The employees may have claims for unfair dismissal breach of contract, but the offer of re-engagement may mitigate their loss. In addition, there may be collective consultation obligations.
- To impose the changes and leave it to the employees to decide how to respond. This may result in claims of constructive dismissal in addition to other claims.
Agreement to Change
An express agreement is the simplest and most effective way to vary an employment contract. However, an employee’s express agreement to a change to contractual terms must be given voluntarily and be free from duress.
Employers should try to obtain written confirmation of the agreement. Verbal agreements to vary are more likely to be contested, at, a later date.
If the change involves any reduction in remuneration, it is particularly important for the employer to obtain the employee’s written consent to the change in order to successfully defend any claim for deduction from wages which may result from its imposition of the change.
Changes to Employees Terms and Conditions | Consideration
Contract law in England Wales requires any agreed variation to a contract to be supported by consideration, meaning that there must be some benefit passing from each of the parties to the other. If there is an inducement (such as a bonus or pay rise) being offered, that will be the consideration. However, in an employment context, the absence of specific consideration for a change may not always be an issue since consideration can be found in the employee’s continued employment.
Unilateral Imposition of the Change
An employer who imposes a contractual change without the employee’s express or implied agreement will be in breach of contract and the original terms of the contract will remain in place. The employee can acquiesce in the breach by simply carrying on working under the revised terms of employment, however this strategy is risky as an employee has other options open to them:
- They can work under the new terms under protest and bring a claim for breach of contract or unlawful deductions from wages (if the breach of contract involves a shortfall in wages). It is also possible that an employee may bring a claim for unfair dismissal.
- If the breach of contract is a fundamental breach going to the root of the contract, they may resign and bring a claim for constructive dismissal.
- If possible (for example, in relation to a change to job duties or hours of work), they may refuse to work under the new terms.
Terminating employment and offering re-engagement on the new terms
Where employees refuse to a change, the employer’s best option is likely to be terminating the existing contract and offering continued employment on the new terms. This does involve embarking on a consultation process with the employees in question.
Where it is proposed that a change is likely to affect 20 or more employees, unless we can get agreement from some that will reduce the numbers, there will be an obligation to collectively consult. Please refer to our advice team for further guidance in these circumstances.
Following a consultation process (tailored depending on numbers involved), provided that the employer has served due contractual notice on the employees (or bought out the notice period with a payment in lieu of notice), it will not be liable for a wrongful dismissal claim.
Even where the employer offers continuing employment on revised terms, termination of the existing employment contract will constitute a dismissal in law and employees will be able to bring unfair dismissal claims in the ordinary way, even if they choose to accept the offer of new employment. In such circumstances, continuity of employment for statutory purposes will be preserved. However, such examples are likely to be few and far between. It is unlikely that employees who have failed to agree to a change voluntarily during the consultation process will subsequently accept an offer of a job on those same terms.
In, order to defend an unfair dismissal claim, an employer must:
- Establish a potentially fair reason for dismissal (within the categories set out in sections 98(1) and (2) of ERA 1996).
- Show that it acted reasonably in dismissing the employee for failure to agree to the change in terms of employment.
A dismissal following a failure to agree to a change will almost always be unfair where the employer has failed to follow a procedure of any kind or consulted with employees over the proposed change, even where the business is faced with financial problems which means that time is of the essence.
As long as the Employer has a sound business reason for dismissing an employee who refuses to accept a change to their terms of employment, it should be able to establish SOSR.
In all such cases, the employer must provide evidence to demonstrate the business reasons for the change and must show that they were not trivial.
In the context of business reorganisation and consequent changes to employees terms and conditions, the assessment of reasonableness usually entails a balancing act – the reasonableness of the employer in dismissing the employee versus the reasonableness of the employee in refusing to accept the change. While dismissing an employee for refusing to accept a change to his or her terms and conditions may be reasonable in the circumstances, it does not follow that the employee’s refusal to accept them is unreasonable.
The factors taken into account in these circumstances include the motives for introducing the changes, employees’ reasons for rejecting the changes and the fairness of communicating the changes, and effects of the changes on employees.
Wirehouse clients must consult with our HR Advice Team before embarking on any variation process so we can guide you through any pitfalls you need to be mindful off and ensure you have a robust business case and fair process in place to support your proposed actions.
If you are not a Wirehouse client, get in touch with our Employment Law team today for advice and support surrounding any HR issues you need help with.