Changing terms and conditions: a tricky issue

Dentons

The COVID-19 pandemic has brought into sharp focus how quickly and unexpectedly things can change. The limitations on existing contracts of employment to accommodate changes has become evident. Going forward, contractual provisions previously considered unusual are likely to become common. These will seek to give employers greater flexibility. In the shorter term, many employers will be looking to make changes to terms and conditions beyond those already made to support claims under the Coronavirus Job Retention Scheme (CJRS, or furlough scheme). Here we look at how those changes might be implemented.

Refreshing employment contracts

Until now it has been rare for employment contracts to include a right to enforce short-term working or temporary lay-off. Many employers have had to do this in recent months without an existing contractual right to do so. The furlough scheme has undoubtedly made it easier for employers to obtain agreement to these changes. Employers would be wise to look at refreshing their standard employment contracts going forward to include express contractual rights to reduce working hours temporarily (short-term working) and to entitle them to require employees not to work without bringing the employment relationship to an end (lay-off). This would make it easier to enforce these changes should unexpected circumstances arise in the future.

Amended contracts can usually be presented to new staff on recruitment or to existing staff at the time of promotion without too much difficulty. It is generally harder when asking existing staff to sign up to new contracts unless the employer can offer something to persuade them to do so. If employers need to make more immediate changes, they might prefer to focus on those for now and make longer-term changes when the workforce is more settled.

Seeking agreement to new terms

Whether asking an employee to sign up to a refreshed contract of employment or asking them to accept a temporary change to particular terms, the best advice will always be to obtain express agreement. This provides certainty for the employer and the employee. However, it can be difficult to achieve where the changes are, or are perceived to be, detrimental to the employee.

Express agreement might be sought simply by providing an employee with a new contract or with a letter setting out the changes to their terms, and asking them to sign and return it to confirm their agreement. However, for more significant changes such as a pay reduction, reduction in working hours, or enforcing a period of lay-off, it is good practice to go through a period of consultation with employees to try to seek their agreement. What this consultation will look like will depend on an employer's particular circumstances; how many employees are involved; whether the circumstances require a collective consultation (see further below); and whether the workforce is unionised or subject to a collective agreement. However, broadly speaking a consultation might involve:

  • an initial communication to employees about the proposed changes;
  • meetings with individual employees or representatives to discuss the proposed changes, seek their views on them and, if possible, get their agreement;
  • time spent considering any concerns raised and alternatives proposed by employees; and
  • a further meeting to discuss the employer's response and (hopefully) reach agreement.

Problems arise, of course, where employees do not agree to the change. In some cases, the employer might simply decide to live with this (for the time being at least) and only enforce the change for those employees who have agreed to it. However, this might not always be an option for wider employee relations reasons, or where uptake of a change is not significant enough to have the proposed impact on the business.

Terminate and re-engage

Where the employer needs to ensure that all employees accept the changes proposed to their terms and conditions, and anticipates that securing that acceptance might be difficult, it might ultimately need to take the step of terminating the employment of those who do not accept, and offering them re-engagement on the new terms. This is clearly a very significant step and should usually only be taken following a period of consultation with the employee as outlined above. Indeed if it is anticipated that it may be necessary to dismiss and offer re-engagement to 20 or more employees, collective consultation obligations will arise. In this case, the employer will need to take certain steps, as it would in a collective redundancy consultation, including:

  • ensuring consultation begins at least 30 or 45 days before the first dismissal (depending on the number of dismissals proposed);
  • informing the Secretary of State of the proposed terminations on form HR1 (even if it intends to keep the same number of employees);
  • informing and consulting with appropriate employee representatives (including an election process if relevant).

Following the end of the collective consultation process, the employer should again ask employees to agree to the changes to their terms. It would then be in a position to terminate the employment of those who refuse and offer them re-engagement on the new terms. Even after consultation this is a dismissal, so it is important that notice of termination is given, or paid in lieu, to avoid a claim for wrongful dismissal.

If a collective consultation process is not followed when it should have been, the employer faces the prospect of a claim and, if the Employment Tribunal finds in favour of the employees, an award of up to 90 days' gross pay per affected employee.

As if that were not enough, there is also a risk of a claim for unfair dismissal. This is possible even if the employee accepts the offer of re-engagement (although in these circumstances the loss may be minimal). When faced with such a claim, it is vital that the employer is able to show that it was reasonable to treat the employee's refusal to accept the new terms as justifying dismissal. This will require strong evidence as to both the business reasons for the change and the consultation undertaken.

Implied acceptance of new terms

An alternative to seeking express agreement to changes to terms and conditions is to rely on implied acceptance. Here, the employer imposes the new terms and relies on the employee's actions in continuing to work under those terms as acceptance. An attempt to enforce changes to key terms, such as a reduction in pay, working hours, or lay-off in this way will often cause significant employee relations issues. One option employers can consider is writing to employees and asking for express agreement by a certain date and, at the same time, stating that, if nothing is heard from the employee by that date, this will be taken as acceptance of the new terms. This only really works where the changes have an immediate impact, such as hours or duties.  Attempting this approach when introducing a general right to place employees on short-time working or lay-off is unlikely to be effective unless used immediately.

There is also the risk that employees might continue to work but state they are doing so under protest. This can lead to claims for unlawful deduction from wages, breach of contract and, ultimately, constructive unfair dismissal sometime later.

Conclusion

Changing terms and conditions for existing employees can be complex when the change is to their detriment. However, with sufficient planning and advice to identify potential problem areas, it can still be possible to introduce changes smoothly and effectively. Every employer will have its own needs and priorities, and every workforce will be different. It is important to take advice on your individual circumstances before engaging in a change exercise.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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