It’s normal for employee's terms of employment to alter, for example, their pay or holidays may increase, and most changes will be uncontroversial, but what happens when employers want to change something the employee will be less inclined to accept?
Employers don’t panic there are options available to you, you can make changes but you need to know how to do so safely. This blog highlights what employers need to be aware of, how best to go about varying contracts of employment and how to make the changes legally binding while minimising any possible disruption. Any questions at all please contact the writer, Rebecca Hardy on firstname.lastname@example.org.
A contract can only be amended in accordance with its terms or with the agreement of the parties. Some changes won’t need the contract itself to be amended as they will be changes in practice or can be dealt with by an annex, some however will need specific wording looked at and amended.
Tip: It is always worthwhile to have a clause in the contract reserving the right to amend terms, this doesn’t give you open access to change whatever you feel like but it will assist with the variation process.
Affecting the contract…
The employer should first decide if its plans involve amending the contract itself. This involves identifying the existing terms of the contract, which may be:
- Express. These are terms that have been explicitly agreed between the parties (either orally or in writing).
- Incorporated. Terms may be incorporated into the contract by statute (for example, the Equality Act 2010
Tip: Just because it is not written down in the contract, it doesn’t mean to say it is not a contract term of employment.
Some terms will not be part of the contract. These include, for example, benefits that are stated to be non-contractual and policies which merely provide guidance on how the contract will be carried out.
Tip: Sometimes a policy can become contractual even if it is not stated to be, for example, through custom and practice, so to vary without following proper procedure may land you in hot water. Employers should also avoid altering non-contractual policies in a manner that is likely to destroy trust and confidence, since this will breach an implied term and you may end up facing claims for breach of contract and constructive dismissal.
Contractual right to vary the term…
If the proposed change will affect existing terms of the contract, the employer will not need to amend the contract if:
- The existing terms are sufficiently broad to accommodate the employer's proposals.
- There is a specific right for the employer to vary the contract in this way.
- The contract gives the employer a general power to vary its terms.
- Any ambiguity in the terms of the contract will be construed against the employer.
- Any specific flexibility clauses will be given a restrictive interpretation by the courts and may be limited by an implied term (for example, an obligation to exercise the clause reasonably).
- General flexibility clauses can probably only be used to make reasonable or minor administrative amendments that are not detrimental to the employee.
Implementing a binding change…
What happens if you want to make a change but there is no contractual right or the employee doesn’t agree?
1. Express Agreement
Get express agreement to the new terms i.e consult with the employee, explain what is happening and why the changes are necessary. Employees appreciate being kept in the loop, they will feel valued and will be more inclined to work with the Company if the reason to vary is transparent.
Always get the employee’s agreement in writing.
Offer some form of benefit/consideration in return for the variation. For example, an extra days holiday.
2. Unilaterally imposing the change and implied agreement
Unilaterally impose the change and use the employee's conduct to establish implied agreement to the new terms.
This strategy is more likely to be effective if there is an immediate practical effect on the employee (for example, a pay cut) and they continue to work without objecting.
Tip: Employers should not assume that silence is sufficient to indicate implied agreement, especially if there is no immediate impact on the employee. If you are unclear speak to an Expert.
If the employer imposes the change it will be a breach of contract. The employee can
- Comply with the new terms but work "under protest" and claim for breach of contract or (if their wages have been reduced) unlawful deductions from wages.
- If the change is sufficiently fundamental, resign and bring a claim for constructive dismissal.
- If possible (for example, where there is a change in duties or hours), refuse to work under the new terms.
3. Terminating and offering re-engagement on new terms
If the employee does not agree to the change, terminate the existing contract and offer continued employment on the new terms. If you want to follow this option PLEASE get advice first.
This approach avoids the risks involved in unilaterally imposing the change on the employee. However you must remember the risks of potentially facing the following claims:
- Wrongful dismissal, unless the employer gives the appropriate period of notice (or makes a payment in lieu of notice).
- Unfair dismissal, unless the employer can establish a potentially fair reason for dismissal and show that it acted reasonably in deciding to dismiss the employee for failure to agree to the change.
A refusal to agree to a change in contracts will usually amount to some other substantial reason for dismissal under section 98 of the Employment Rights Act 1996 (SOSR), provided there is a sound business reason for the change.
Acting reasonably includes following a fair procedure and so the employer must give the employee sufficient information about the reasons for their possible dismissal, and the opportunity to state their case at a hearing.
Tip: If you’re proposing to make changes to several employees' contracts, the dismissals will be treated as redundancies for certain purposes therefore it is important you get advice on what procedure to follow as it is different from normal practice.
If the employer is proposing to make changes to an employee's terms in connection with a transfer of an undertaking to which the Transfer of Undertakings (Protection of Employment) Regulations 2006 apply, then additional issues arise. Any changes will be void if the sole or principal reason for the change is the transfer itself or a reason connected with a transfer which is not an economic, technical or organisational reason entailing changes in the workforce.
Tip: If you’ve gone through a recent TUPE transfer seek advice before you make any contractual changes.
Claims of indirect discrimination could arise if the proposed change impacts unfairly on a particular employee or group of employees by reason of their sex, race, disability, religion or belief, sexual orientation or age.