The pitfalls of changing terms of an employment contract

The economy has changed so with regret you may need to change someone’ terms of engagement. Lawyer Jo Plumstead talks through some issues.

Changing contractual terms is a tricky area, but increasingly employers want to negotiate changes to help them to remain competitive and employees are taking a pragmatic view that it’ better to keep their jobs than to refuse and risk redundancy. News reports about the vote by BAE staff to agree a deal –  (http://www.bbc.co.uk/news/uk-england-lancashire-17322354) is just the latest example of this new pragmatism, but similar agreements have been reached in organisations of all sizes. Ultimately some employers resort to dismissing all employees and offering re-engagement on new terms, but that is a last resort, and there are other steps you should consider first. Whether you have a unionised workforce, or are a small business, the basic principles are the same. This is my checklist of the main points to consider.
  1. Check what individual employment contracts (and any collective agreement) say. If the change does not involve a contractual term, you may not need consent from employees.
  2. If there’ nothing in writing it still may be a contractual right by custom and practice. That’ just as binding as a written term. Assess whether the term is widely known and how long it has been in place.
  3. If it is a contractual term & check whether you have any flexibility built into the contract, such as a mobility clause. You need to be absolutely sure that the change falls within the scope of a flexibility clause to use it.
  4. If using a flexibility clause, you must operate it reasonably. If you don’t, for example if you peremptorily demand that employees relocate with no warning or practical help, you could be in trouble. It could be a breach of the implied term that you will not undermine trust and confidence between employer and employer.
  5. If you have a general term allowing adjustments to terms and conditions, it’ okay to use that to make minor changes but these will not be regarded by the courts as a blanket consent to big changes like reductions in pay or increase hours.
  6. Use the negotiation framework set out in any collective agreement for negotiations on changes of terms. If you don’t have one, you will have to a work out one of your own. Start by letting all workers know what you plan to do, and why. Options to do this include departmental meetings, letters to all employees, individual meetings, or a combination of these. Experience shows that a better outcome is likely if workers understand the reason for the change, and have opportunities to voice their concerns, so it is important to build in face to face meetings.
  7. If the change is contentious, and you think you may have to terminate existing contracts and reemploy on new terms, you must comply with the collective consultation rules as if you were carrying out redundancies , if 20+ employees are involved. That means starting collective consultation at least 30 days in advance.
  8. If you anticipate resistance, consider offering a ‘carrot’ to agree, before you begin to think about using the ‘tick’ of termination and re-engagement. This is more difficult if you are making the change to cut operating costs, but there may be a low cost offer you could make to sweeten the deal. It may also help if the change is only temporary.
  9. It is not safe to assume that because an employee carries on work after you propose a change that they have given their consent. Get them to sign to confirm agreement.
  10. Will there be a disproportionate impact on a particular group such as older workers’ If so consider carefully why change is needed and whether there are other options, to be sure you are not unlawfully discriminating against a protected group without justification.
  11. What if most employees agree, but a stubborn few refuse ‘In this situation, your options’ include:
    1. dismissing those who will not agree. Before taking action, think about how to avoid unfair dismissal claims. Would compromise agreements be the answer?
    2. treating them as a special case. Beware of long-term ill-feeling from others who agreed the change earlier to save their jobs. In general, it works best if everyone in the business shares the pain.
  12. As a last resort, give proper contractual notice of termination (including a right to appeal), offering re-employment on the new terms. Before this, have individual meetings with everyone, to discuss why they are refusing, and explain the consequences. There is a risk of unfair dismissal claims, but provided you have a genuine business need for the change and have gone about the process in a reasonable way, those claims will not succeed.
  13. Finally, when the agreement is all sorted out, send out new terms and conditions statements to everyone.
The key to success is to keep talking, listen to what employees have to say and make sure that your workforce understands why the change is needed. Jo Plumstead is an employment specialist based near Norwich.