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Avoiding the Legal Pitfalls When Changing Employees' Terms of Employment

There are several key issues Employers should consider when changing employees' terms of employment, including potential pitfalls to avoid when making changes.  

In every business the need for change can be driven by a variety of factors, economic, technical, organisational or a combination of each, but it is a matter of fact that all businesses will experience change, regardless of their size, at some point, and when these changes happen there will undoubtedly be a need for employers to alter the terms and conditions of their employees.

It is, therefore, imperative that employers understand employment law when changing an employee’s terms because getting it wrong can lead to employment tribunal claims for breach of contract and/or constructive unfair dismissal.

Changes to an employee’s terms are typically incurred when employees are promoted or when they are awarded pay increases, and these types of changes are usually straightforward as they normally happen by mutual consent and are therefore unlikely to cause employers legal and/or practical problems, but what happens when an employer or employee wants to make a change that the other party may not be happy to accept?  In this article we focus on how employment law governs how employers may make changes to terms of employment of their employees.

Does the Planned Change Affect the Existing Terms of Employment?

When an employer is considering making changes the first thing to establish is whether or not their plans will actually involve changing the contract itself and so the starting point is to establish clearly what existing terms actually are.  However, this isn’t is simple as it sounds as the contractual relationship between an employer and employee is not simply what, if anything, has been set out in writing.

Terms of employment are established in three ways – Express Terms:  These are terms that have been explicitly agreed between the parties (either orally or in writing).  Implied Terms:  Terms may be implied for a number of reasons, for example through custom and practice.  Incorporated Terms:  Terms may be incorporated into the contract by statute (for example, the Equality Act 2010 implies an equality clause into every employment contract) or as a result of a collective agreement.

Other terms will not be part of the contract, for example ‘HR policies’ typically contained within a staff handbook, which merely provide guidance on how the contract will be carried out. However, sometimes a policy can become contractual even if it is not stated to be, for example, through custom and practice. Furthermore, an employer should avoid altering non-contractual policies in a manner that is likely to destroy trust and confidence, since this will breach an implied term, or in a manner that is discriminatory.

Is There a Contractual Right to Vary the Terms of Employment?

Having established the existing terms of employment the next step is to determine whether or not the proposed change will affect the existing terms of the contract.  There are some circumstances where employers will not need to amend the contract, for example where the contract gives the employer a general power to vary its terms, but employers should be mindful that even where there a general contractual provision to vary employment terms, 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 in Terms of Employment

Where there is no contractual right to make a change to an employee’s terms, or where the changes are likely to be seen as significant and/or potentially detrimental to the employee (eg. variation to working hours, place of work) employers can implement the change to terms and conditions of employment in one of three ways:

  1. Get express agreement to the new terms (either from the employee or through a binding collective agreement).
  2. Unilaterally impose the change and use the employee's conduct to establish implied agreement to the new terms.
  3. Terminate the existing contract and offer continued employment on the new terms

Getting Express Agreement to New Terms of Employment

Through effective consultation with affected employees, or the union where a collective agreement is in place, the proposed change to the employees’ terms and conditions of employment are agreed either orally, or in writing.  Although an employee will be deemed to have impliedly accepted a change to their terms if they continue to work without objection for four weeks or more from the date the change is introduced, it is preferable to obtain the employee’s written acknowledgement / acceptance of the change, especially where the change itself is not immediate, for example where a change to notice periods or the addition of post employment restrictions is introduced.

Unilaterally Imposing New Terms of Employment

 Introducing a unilateral change and relying on the employee’s conduct to establish implied agreement to the new terms can be problematic for employers, especially where the change itself is not immediate.  When introducing a unilateral change to terms employers could find themselves in breach of contract if employees comply with the new terms but work "under protest", and where the change imposed is substantial, the employer may be deemed to have dismissed the employee, so it is possible that an employee bring a claim for unfair dismissal.  Employees could also refuse to work under the new terms, which could result in them resigning and bringing a claim for Constructive Dismissal.  

Terminating the Existing Contract and Offering New Terms of Employment

Although this approach will avoid the risks involved in unilaterally imposing a change to employees’ terms of employment, employees may be able to bring a claim at the Employment Tribunal for 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, or a claim for wrongful dismissal, unless the employer gives the appropriate period of notice (or makes a payment in lieu of notice). 

Summary

The importance of understanding fully the potential implications of changing an employee’s terms of employment cannot be understated.  We have highlighted above a number of potential issues and risks that employers should consider, but there are many more that may need to be considered depending on the specific circumstances driving the proposed change to an employee’s terms of employment.  For example, changes being proposed in connection with a transfer of undertaking (TUPE), or where it could be argued that the proposed changes might impact unfairly on a particular employee or group of employees by reason of their sex, race, disability, religion or belief, sexual orientation, could give rise to claims under TUPE or indirect discrimination and so it is important to get legal advice at the earliest opportunity.

How can EmployEasily Legal Services Help You?

As specialists in all areas of employment law and HR, the team at EmployEasily Legal Services are well placed to provide Employers with employment law advice and HR support, including the drafting or updating HR policies and/or contracts of employment, introducing new HR policies to their employees and providing on-site support in any staff consultations, meetings or hearings.

Contact us today to find out how EmployEasily Legal Services can help you prevent problems and protect your business!

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