We often receive enquiries from clients asking whether they can change terms and conditions of employment of their current employees and how they should best do this. Whether you are looking to make discrete and very specific changes such as changes to pay, bonus, restrictive covenants or place of work, or a variety of changes to terms and conditions to harmonise employment terms across your business, we set out a general guide for employers below. Plus, our employment solicitor Sean Walsh explains how this tricky situation runs the risk of employees claiming unfair dismissal or constructive dismissal, often arising because of harmonisation after a TUPE transfer, or after another business reorganisation.
- Changing employment terms and conditions: an overview
- Can terms and conditions of employment be changed?
- How to identify contractual provisions
- What changes are authorised by the contract?
- Changing terms and conditions of employment
- 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?
- Changing terms and conditions of employment after TUPE
Changing employment terms and conditions: an overview
Here, Sean explains different processes of changing employment terms and conditions, flags the risks for each and shares his top tips for ensuring a fair procedure.
Can terms and conditions of employment be changed?
Changes to terms and conditions of employment can be made in the following ways:
- Agreement between the employer and employee. However, those employees who do not agree to the changes are dismissed and may claim unfair dismissal and possibly also breach of contract.
- 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, though. Again, the employees may have claims for unfair dismissal and breach of contract, but the offer of re-engagement may mitigate their loss.
- Impose the changes, so that the employee must decide how to respond. This may lead to a variety of claims, including for constructive dismissal.
- You could rely on a collective agreement if it is binding on individual employees.
It is important to first consider whether the changes you wish to make to the employment relationship require changes to be made to your employees’ employment contracts.
If the contract is silent on something, the specific change is allowed by the employment contract, or has otherwise been agreed between the employer and employee, there will not need to be a change made to the contract.
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 made without using any of the above methods.
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 does not constitute the whole or even part of the contract of employment, unless that was the clear intention of the parties. Otherwise, a written contract of employment will override the section 1 statement if there is a conflict.
Even if terms contained in a staff handbook or other document are stated expressly to be non-contractual, an employer may be in breach of the implied term of trust and confidence if it removes a benefit or significantly adapts a policy to the detriment of its employees. This could potentially leave you vulnerable to a constructive unfair dismissal claim by the employee.
A rule or policy will only have contractual effect if it confers contractual rights on employees and does not just state good practice. Employers should always draft policies they do not want to become contractual 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.
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
- Or because it is logical from the conduct of the parties or 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 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’.
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.
What changes are authorised by the contract?
A change authorised by the employment contract is not a variation of the contract. Just because the contract appears to allow the employer to make a certain change, the employer must act reasonably and with caution. It is advisable to take professional advice before making a change, if in doubt.
The below table sets out those changes which you can make because they are authorised by an employment contract and those which are not:
|Changes authorised by the employment contract||Changes not authorised by the employment contract|
|If there is a clause in an employment contract which can be interpreted broadly enough to include the change the employer wants to make, this is an authorised change.||Even if clauses are drafted into an employment contract you should ensure that they are not void. Changes cannot be made to a contract if there are statutory restrictions or common law rules preventing those changes. For example, if a term tries to take away employment protection rights, this would be void under the Employment Rights Act 1996. Reliance on a flexibility clause allowing for a change of location may give rise to a claim of indirect sex discrimination and there is also a common law rule prohibiting penalty clauses in contracts. Relying on clauses with these effects could be damaging for your business.|
|Some clauses in employment contracts give an express right for the employer to make changes. For example, a specific flexibility clause allowing the employer the flexibility to change the employee’s place of work to different sites can allow this change to be authorised without agreement by the employee. Courts may also imply a term into an employment contract to authorise a change in working conditions in some circumstances. For example, a specific flexibility clause on mobility expecting an employee to move their place of work, provided it is still within reasonable travelling distance of their home could be implied even if not expressly contained in an employment contract. Professional advice is recommended before making a change on this basis.||Even if there is a specific flexibility clause contained in the employee’s contract of employment, this will be given a restrictive interpretation by courts and tribunals. Plus, the implied terms of an employment contract may restrict the contents of such a clause and so employers should exercise specific flexibility clauses cautiously and ensure that they are well drafted. If you require for a specialist to draft or review your business’ contract of employment, contact our employment lawyers.|
|The contract of employment may give the employer a general power to vary the terms of the employment contract and employers may be able to rely on this in rare circumstances.||As with specific flexibility clauses, general flexibility clauses must be used with caution. Only the most clearly drafted of clauses will create a right to make any changes the employer wishes to the employment contract. In practice, courts and tribunals are unlikely to allow an employer to rely on general clauses to make changes to an employee's detriment, such as to withdraw employee contractual benefits.|
|Changes may also be made if they are authorised by a clear term incorporated into the employment contract by another employment document such as a staff handbook.|
Changing terms and conditions of employment
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, employers 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 to the change.
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 they do 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. If, however, the change does not have an immediate impact on the employee, employers 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.
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 and so below are some tips to assist you with this:
View the process as a selling exercise and consult thoroughly with the employees.
Whilst you are not asking your employees’ permission to make changes, if you communicate clearly with your employees and are able to find out what it is they object to and what might resolve the objection for them, this could be helpful in reaching a mutual 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 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 this option.
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 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 employees be offered any incentive to help them 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 take the option of imposing a contractual change, in breach of the 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 has 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 (stand and sue) making it clear that they do not agree to the new terms and 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 employer’s 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 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 reason of their 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.
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 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 would be caused by 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 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 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.
You should remember that if this is to be done on a larger scale involving 20 or more employees the collective consultation obligations apply.
In terms of liability for an employer, this option may be best as employers can avoid liability for wrongful dismissal if an employer has served due contractual notice on the employee or paid them in lieu of notice. However, 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.
Employees will 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 should be able to establish Some Other Substantial Reason (SOSR) which is a fair reason for dismissal.
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 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 judged as 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.
Changing terms and conditions of employment after TUPE
Employers 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.
For a detailed look at changing terms and conditions under TUPE read our guide on: Transferring employees under TUPE.
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 the automatic unfair dismissal claim. Whilst there are limits to settlement agreements and this may not might be the least risky legally speaking, this might be the best route in some circumstances, such as where an employer requires senior employees to sign up to restrictive covenants following a transfer, which if they do not sign could be more costly to the business than an unfair dismissal claim. For other options in your business’ particular circumstances, contact our employment lawyers.