During an employee’s employment, particularly where an individual has been employed for a long time, it may be desirable for the business to consider changing their terms. For example, in recent years, an ability to change the place of work to home or allowing hybrid working has been a useful change of employment for some businesses. If an employee requests such a change or it may be beneficial to them, this is not likely to cause a problem. Otherwise, unless sufficiently precise, a specific flexibility clause relating to place of work in employment contracts are unlikely to allow this type of term to be changed . A general flexibility clause is only likely to allow minor changes to be made.
So more broadly, how can changes to terms and conditions of employment be made? Changes not permitted in an employment contract itself can be made in the following ways:
- Agreement between the employer and employee. This can either be with the individual employees or by way of relying on a collective agreement if it is binding on the relevant individuals.
- Terminate the existing employment contracts and offer re-engagement on the new terms. Collective consultation will be required if 20 or more employees are affected. However, the employees subject to this option may have grounds for claims including for unfair dismissal and breach of contract. Nevertheless, the offer of re-engagement may mitigate their loss arising from such claims.
- Impose the changes, so that the employee must decide how to respond. This may also, however, lead to a variety of claims, including for constructive dismissal.
Further details on these options are set out below in this guide.
It may sound obvious, but it is important to ensure at the outset that you, as the employer, are clear as to what the relevant terms are before you seek to change them. An employment contract or specific terms can be formed orally and, if this is the case, changes are treated in the same way as written contractual terms.
Once you are fully aware of the employee’s terms, it is important to consider whether the changes you wish to make to the employment relationship require amendments to be made to the relevant individuals’ employment contracts. Where a specific change is permitted by the employment contract or has otherwise been agreed between the employer and employee, it is not essential to amend the contract itself. It is, however, good practice for any changes to be recorded in writing wherever possible.
Changes which would mean an improvement to the terms and conditions of an employee, such as a pay rise or improved benefits, or basic administrative changes are unlikely to be challenged and so can generally be easily agreed between the parties.
- How to identify contractual provisions
- How can terms and conditions of employment be changed?
- How to negotiate and come to an agreement
- What about unilateral enforcement of changes?
- What types of claims could result from not reaching an agreement?
- Is termination of employment and re-engagement on new terms and conditions a better option?
How to identify contractual provisions
The terms of an employment contract are the rights and obligations that bind the employer and employee and can be express or implied terms or incorporated from elsewhere.
Express terms are those that have been agreed explicitly between the parties, and whilst most of these will be in writing in the employee’s contract of employment, or other employment documents such as a staff handbook, these express terms can be orally agreed.
While a section 1 statement (the minimum information that an employer should supply to an employee) may be a good place to start (as it provides evidence of what has been agreed between the employer and employee), it is unlikely that this would constitute the whole of the contract of employment, unless it is made clear that this was the intention of the parties.
Even if terms contained in a staff handbook or other document are stated expressly to be non-contractual, you may be in breach of the implied term of trust and confidence if you remove a benefit or significantly adapt a policy to the detriment of your employees. This could potentially leave you vulnerable to a claim including for constructive unfair dismissal.
A rule or policy will only have contractual effect if contractual rights are attached. Guidance or a good practice policy are unlikely to bestow contractual rights to their contents. If you do not want policies to become contractual, they should be drafted in a manner inconsistent with creating contractual rights and expressly state in the policy, code or scheme that its provisions do not form part of the contract of employment. If you would like help reviewing your policy documents, our specialist employment solicitors can help.
As above, there can also be implied terms of employment, which are terms that have not been specifically stated by the parties when entering into the contract and may be implied because:
- They are part of the custom and practice of an employer's business or industry
- They are too obvious
- The parties assumed that they would be incorporated; and/or
- Because it is clear from the conduct of the parties or required to make the contract work
Terms can also be incorporated into an employment contract because of statute. For example, the terms of the Equality Act 2010 are incorporated into every employment contract, or from the terms of a collective agreement. The terms of a collective agreement will only bind a particular employer and employee if the wording of the individual contract of employment provides for incorporation and the term is, ‘apt for incorporation’ which will depend on the specific circumstances.
If you are unsure as to whether something is contractual or not, it is prudent to seek professional advice as soon as possible and before taking action to change terms and conditions of employment.
How can terms and conditions of employment be changed?
If you are looking to make a change to your employee’s employment contracts which is not authorised by the employment contract, there are three ways to do this:
Get the employee's express agreement to the new terms individually or by way of a collective agreement.
The most straightforward option is for the employee to agree to the changes voluntarily and free from duress. Whilst oral agreement to the change is sufficient, you should try to obtain written confirmation of the agreement to change the contract to avoid future uncertainty.
There should also be some consideration or benefit passing from each of the parties to each other for an agreed contractual variation to be valid. Consideration can sometimes just be the employee's continued employment, but if the change to the employment contract is not due to take effect until some point in the future it will be more difficult for employers to rely on continued employment as consideration for the change. In that case, it is advisable to give some other form of consideration such as an additional payment or benefit.
Changes by collective agreements are changes in terms of employment that are negotiated by an independent trade union (or other employee representative body). This may be effective where the union or representative body has acted as the employee's agent in negotiating the change or where the collective agreement reflecting the amendment has been incorporated expressly or impliedly into the employee's contract. An employer may try to negotiate directly with an employee. However, if the employer’s main purpose is that the worker's terms of employment will not be determined by collective agreement negotiated by or on behalf of the union, an employee may have a successful claim against the employer.
Impose the change and rely on the employee's conduct to establish implied agreement.
If the employee does not wish to accept the change but continues to work within the terms of the varied contract, they should make it clear that they are working under protest and that they do not accept the new terms.
If an employee does not make this clear, especially where the imposed change is immediate, like a reduction in pay, the employee is at risk of being held to have impliedly agreed to the change.
If there is implied acceptance, there will be no breach of contract by the employer and the employee will not be able to sue for damages or resign and claim constructive dismissal in response to this. If, however, there is ongoing litigation or union involvement on similar or related issues, you should err on the side of caution in assuming an implied acceptance. Further, if the change does not have an immediate impact on the employee, you should not assume that silence is sufficient to indicate implied agreement.
Terminate the employee's employment and offer re-employment on the new terms.
In most cases, it is unlikely to be commercially viable for employers to abandon or delay a change to employment contracts and so this may be the best option.
However, in light of some recent cases (including P and O Ferries involving “firing and re-hiring”), in March 2022, the government announced that a new Statutory Code of Practice will be introduced which will explain how businesses must hold fair, transparent and meaningful consultations on proposed changes to terms and conditions. At the time of writing, the full wording of the Code has not yet been published.
In addition, ACAS advice is that dismissing, and rehiring should only be considered as a last resort if all attempts to reach agreement through consultation have been tried first.
How to negotiate and come to an agreement
Introducing changes to terms and conditions of employment can be a hard sell, particularly if they leave the employee worse off. Please see below some practical tips to assist you with this issue:
View the process as a selling exercise and consult thoroughly with the employees.
Whilst you are not asking your employees’ permission to make changes, communicate clearly with your employees and consult meaningfully with them. This way they will feel listened to, and you can find out specifically what it is they object to and what might resolve the objection, which could be helpful in reaching an agreement on terms.
It is not always possible for both sides to get exactly what they want, but if both parties understand the position of the other and why they take the view that they do, the negotiation is likely to be more successful.
You should ask the question ‘why is the change needed?’
Before introducing a change, you should carefully consider why the change is needed so that employees can better understand the company’s perspective. For example, if a reduction in costs is required to avoid a redundancy process and employees are made aware of this, they may be inclined to accept changes to their terms versus being subject to a formal redundancy process. To avoid claims of unfair dismissal, it is critical not to say that redundancies are a certainty, but that this will be the next consideration if the contractual changes are not agreed.
You should carefully consider timing
Are you looking to make disadvantageous changes to an employee’s contract at a sensitive time? Are you looking to make changes to an individual’s contract just as they have announced that they are pregnant or as they are returning from maternity leave?
You will need to carefully think through when announcements are to be made and be particularly careful if the timing of any changes may appear to be due to discrimination.
It could be that you seek to introduce a disadvantageous change at a time when the employee is receiving another benefit such as a bonus. You might also consider whether all changes must be implemented at once, if you are thinking about making a lot of changes. It might be that the business requires this, or it may be that the employees would be more accepting of the changes if they were more gradual with transitional arrangements in place.
Can an incentive help employees accept the change?
Is there an additional benefit which is of value to the employee and which you might be able to offer in return for a change? If so, this might help you and the employee come to an agreement on the changes you wish to implement. Listening to employee concerns and what they would ideally like to happen can mean you reach an agreement quicker, which can only be a good thing for your business.
What about unilateral enforcement of changes?
If agreement cannot be reached with employees, an employer can always impose a contractual change, in breach of the employment contract. It will then be dependent on the employee’s response to the breach as to what happens next.
If the employee carries on working under the new terms without dispute, the employee will be deemed to have accepted the breach and the new terms will continue to apply.
The employee could choose instead to continue working, under the new conditions, but under protest (also known as, ‘stand and sue’) making it clear that they do not agree to the new terms and then bring a claim for breach of contract or unlawful deductions from wages (if the breach of contract involves a shortfall in wages).
If an employee does not want to resign, they can either work under protest or refuse to work under the varied contract, but not both. An employee who chooses to ‘stand and sue’ must actually work to the new terms then the employment contract will continue, and the employer will remain liable for any losses suffered by the employee, unless the employee expressly accepts the employer's repudiation.
Courts will allow employees a reasonable period of time to try out the new working arrangements before deciding if they object to them. But they cannot wait too long, as this suggests that the changes have been accepted.
If the change imposed is substantial, there may be a case for unfair dismissal if the employee is deemed to have been dismissed by the changes.
Where the change amounts to a termination of the old employment contract and an introduction of a new employment contract, the employee can work under the new contract and claim to have been unfairly dismissed from the old one. In most cases, the imposition of a change by the employer will not result in a deemed termination.
What types of claims could result from not reaching an agreement?
The below are the types of claims which may be the result of an employer unilaterally introducing changes to terms and conditions of employment:
- Breach of contract. Damages for a breach of contract claim brought during employment are made in the civil courts (the employment tribunal only hears breach of contract claims which arise on the termination of employment). Only direct financial loss arising from the breach can be recovered. Where the employee cannot establish financial loss, their only other remedies are a declaration that the variation was a breach of contract or less commonly an injunction restraining the breach.
- Unlawful deductions from wages claim. Where the change results in a reduction in pay, the employee may be able to bring a claim before an employment tribunal that the employer has made an unlawful deduction from wages. The main issue here will be whether the employee can be said to have accepted the change by continuing in employment.
- Unfair dismissal claim. If there has been a substantial change to the employee's terms and conditions, this may give rise to a deemed dismissal.
Furthermore, if the breach of contract is a fundamental breach going to the root of the contract, the employee may choose to resign and bring a claim for constructive unfair dismissal.
This claim will only be successful if the change is likely to amount to a serious or repudiatory breach of contract by indicating that the employer no longer intends to be bound by one or more of the essential terms of the contract of employment. Whether the term is essential or not will depend on the effect the breach of that term has on the employee.
A failure by the employer to pay an agreed rate of salary or provide other financial benefits to the employee's detriment is likely to be a repudiatory breach of contract.
Imposing new or revised terms could give rise to a breach of the implied term of trust and confidence leading to resignation and a constructive unfair dismissal claim. This will be the case where a series of actions by the employer leads to a ‘last straw’ event amounting to a breach of trust and confidence.
Once a repudiatory breach has been demonstrated the employee would need to prove that the employer's breach of contract caused the employee to resign and that there was no affirmation of the employment contract, such as an unreasonable delay between the breach and the employee's resignation.
An employee may also be able to rely on an anticipatory breach of contract as a basis for a constructive dismissal claim where the employer has made clear a future intention to fundamentally breach the terms of an employment contract.
If an employee refuses to accept a change in terms but chooses not to resign, the employer is then left to make the next move with a predicament over what to do with the obstructive employee.
The employer may be forced to dismiss in order to prevent insubordination in the workplace and implement the proposed change. Whilst this could lead to a claim for unfair dismissal and possibly wrongful dismissal (if the dismissal takes place without notice), the dismissal will be fair if:
- An employee stated that they would work to new terms under protest, but then refuse to; or
- If, on return to work after a period of sick leave, an employer allows an employee to return to only some of their previous duties, and the employee refuses to carry out the partial role but continues to be paid.
The employer's decision to treat this as gross misconduct and dismiss the employee has been upheld by the Court of Appeal.
Is termination of employment and re-engagement on new terms and conditions a better option?
If agreement with the employee is not an option, the employer's best option might be to terminate the existing contract and offer continued employment on the new terms instead of imposing the changes unilaterally. If this is to be done on a larger scale involving 20 or more employees, collective consultation obligations would apply. Given the potential risks involved here, we would recommend that you take specialist legal advice in this particularly in this scenario.
Whilst employers could potentially avoid liability for wrongful dismissal if an employer has served due contractual notice on the employee or paid them in lieu of notice, other risks may remain with this option. For instance, a constructive dismissal claim may be successful if the employer states an intention to dismiss on notice at some point in the future as there is an anticipatory breach of contract.
Otherwise, employees may be able to bring unfair dismissal claims, even if they choose to accept an offer of new employment where a dismissal and re-engagement on new terms is offered. However, so 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 may be possible to establish Some Other Substantial Reason (SOSR) which is a potentially fair reason for dismissal. This is notwithstanding other potentially fair reasons which may also apply depending on the facts. Once SOSR is established as the main or sole reason for the dismissal, the employer must then show that the decision to dismiss for SOSR was reasonable in all the circumstances, taking into consideration the size and administrative resources of the employer. This is likely to mean a fair procedure and some level of individual consultation (the level of obligation required being subject to the circumstances) with affected employees must take place for an unfair dismissal claim to fail. If you would like more guidance on this, please contact our employment specialists for advice.
If a dismissal has been determined by an Employment Tribunal (‘Tribunal)’ as being unfair, it is then for an employer to attempt to establish that the employee failed to mitigate their loss by refusing to accept re-engagement on the new terms. This may be successful where the new terms are very similar to the previous ones, but this is not always the case, because a Tribunal’s view may be that it was not unreasonable for an employee to refuse the new job on the new terms when it has already found in the employee’s favour on the point of liability.
If the new terms are very different to the original ones so that the original contract is effectively terminated, such as where there is a demotion or reduction in wages or both, Tribunals may construe the variation as a dismissal. This is because dismissal does not require for an employment relationship to be terminated, only that particular contract, for there to be a deemed dismissal.
‘Firing and re-hiring’ has been in the spotlight over the last year and, as mentioned above, has meant the government has decided to introduce a Statutory Code setting out how this method can be used fairly in further detail. Under the new statutory Code, Tribunals and Courts will be required to take the wording of the Code into account when considering relevant cases, including unfair dismissal. They will have the power to apply an uplift of up to 25% of an employee's compensation where the Code applies, and the employer unreasonably fails to follow it.
Another recent point which has arisen, is the requirement to check that by terminating and re-engaging an employee you are not doing this purely to remove a contractual entitlement brought about by collective bargaining. In a recent case involving an enhanced pay offer to retain employees being proposed to be removed, the High Court granted an injunction to prevent this. This is because a collective agreement reached in 2010 stated that the enhanced pay would be a ‘permanent feature’ of each affected employee's contractual entitlement and could only be changed through mutual consent, or on promotion to a new role. The Court of Appeal subsequently overturned the High Court's injunction on these facts, but if the improved benefit or pay had not been for as long, on alternative facts, the situation may have been different.
According to ACAS, proposing to dismiss and rehire an employee is an extreme step that has significant risks. If changes are not managed well, employers may lose valued staff or find it difficult to attract new employees due to ensuing reputational damage. Legal challenges and industrial action where a trade union is recognised may also arise. Therefore, if you are embarking on this method to change terms and conditions, it is strongly advisable to seek professional advice first.
Changing terms and conditions of employment after a relevant transfer under TUPE
You should be particularly cautious if looking to change the terms and conditions of employees around the time of a relevant transfer under TUPE, as there are more restrictions on changes to protect the rights of transferring employees that would apply here.
If you do not think that any of the above methods will work in your business’ circumstances, you could try dismissing the employee, re-engaging them on the new terms and entering into a settlement agreement to compromise any subsequent automatic unfair dismissal claim. Whilst there are limits to settlement agreements and this may not be the least risky option legally speaking, this might be the best route in some circumstances. This could include situations where you require senior employees to sign up to restrictive covenants following a transfer, which if not signed could be more costly to the business than a potential unfair dismissal claim. For other options which may be available to consider depending on your business’ particular circumstances, please contact our employment lawyers.
Whilst changing terms and conditions is possible, mutual agreement between you and your employee, verified in writing, is by far the best method to achieve this. Focusing on giving employees time to consider and discuss the changes with you before agreeing the changes is favourable to the alternatives of imposing the changes unilaterally or terminating and re-engaging the employee on new terms, which could lead to costly and time-consuming litigation. If you would like to discuss your employees’ terms and conditions and any changes you would like to make to them, our employment solicitors can help.