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Farrer & Co | The terms they are a-changing – making changes to employees' terms and conditions

There are many reasons why an employer may wish to make changes to an employee’s terms and conditions of employment. The starting point at law is that changes to an employment contract cannot be made unilaterally. Imposing new terms, without the employee’s consent, will therefore constitute breach of contract and could result in an unfair dismissal.

Such changes are easily made by mutual consent - what employee makes a fuss about an increase in salary? But what are the options for employers wanting to introduce changes which may be less beneficial to employees?

Rely on a contractual “flexibility” clause

Some contracts contain a “flexibility” clause purporting to give the employer the right to vary terms unilaterally. However, such clauses should be exercised with caution; they are interpreted narrowly by courts, such that unless clauses expressly allow a specific change, it is unlikely that the change will be deemed valid.

Impose the term unilaterally

An employer could go ahead with making the changes unilaterally, informing employees of changes and waiting to see what happens. If employees continue to work without objecting, the employer could then argue that the new terms have been impliedly accepted.

However, this approach is inherently risky. Employees may say they are working “under protest” and bring claims for breach of contract. If changes are significant, or the final straw in a series of actions, the employees could also argue they have been constructively dismissed, allowing them to resign and bring claims for unfair dismissal. Equally, where the changes are substantial, the employer may be deemed to have dismissed the employees and re-engaged them on new terms (see below) – again potentially giving rise to unfair dismissal claims.

Employers should also be careful with this approach where the change of contract does not have an immediate impact on the employee.  In these cases, because employees will not feel any practical impact of the change straight away, the courts have indicated that silence is unlikely to be sufficient to indicate implied agreement.

Seek express consent

The safest option is therefore to seek express agreement to the new terms. Depending on the changes, this is likely to require some form of consultation with employees, explaining the rationale behind the changes and why they are necessary. This may be relatively straightforward where an employer is only looking to change the terms and conditions of one employee – but could become more complicated where the proposals impact a group or groups of employees (see below re collective consultation requirements).

Employees will then need to agree in writing to changes, in exchange for consideration. In many cases, continued employment will be sufficient consideration, but not always (for example, where you are introducing new post-termination restrictions).

Fire and rehire

But it may be that some employees remain unwilling to agree. For those employees, your only (albeit pretty drastic) option may be to terminate their contracts (giving the required notice, to avoid wrongful dismissal claims) and re-engage them on the revised terms.

This, of course, involves a termination, potentially giving rise to unfair dismissal claims – whether employees accept the new terms or not. Employees could refuse to sign up to the new terms or accept them but work under protest. It is therefore important that you follow a fair process and consult with employees regarding changes before taking this step and minimise any losses as far as possible.

Other considerations

Whichever route you take, there are a number of additional considerations to keep in mind, particularly where groups of employees are affected by the proposed changes. These include:

  • the risk of discrimination claims, if the proposed changes impact an employee or group of employees differently, because of a protected characteristic;
  • restrictions on changing terms and conditions following a TUPE transfer;
  • the statutory obligations for collective consultation under TULRCA, where 20 or more employees are affected (remember the definition of redundancy is construed widely, and so would catch proposals to fire and rehire 20 or more employees); and
  • the impact on restrictive covenants, if the employer commits a repudiatory breach of contract.

If you require further information about anything covered in this briefing note, please contact Emily Part, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, April 2019

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