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It is quite common for employers to want to amend employees’ terms and conditions of employment from time to time, and in many cases, the changes will be welcomed by both parties.
Realistically, an employee is not going to complain about a pay rise or more flexible working arrangements – but what happens when proposals are less favourable? If employees resist contractual changes, what options are available to the employer?
For employers, it is important to understand the rules around changing terms and conditions of employment in the UK to avoid legal pitfalls.
It should be recognised that UK law establishes certain minimum duties and obligations that all employers must abide by. For instance, employers cannot agree with an employee that they will be paid below the applicable national minimum wage. The law will override any agreed terms that do not fulfil statutory duties.
Written contracts of employment
Contrary to popular belief, a contract of employment does not have to be in written format to be legally valid. While it is common for contracts to be signed physical documents, verbal agreements are just as legally enforceable as written ones.
However, where employers enter into a contract of employment with an employee verbally, and their employment is to continue for more than one month, they must be given a “written statement of employment particulars”.
This should include, among other things, the employer’s name and address; the employee’s details – their name, job title, job description, start date; salary, including payment intervals (weekly, monthly, and so forth); working time and holiday entitlements; notice periods; pension schemes; and any applicable collective agreements. This must be provided within two months of the employee’s start date.
That said, it is strongly advised to have a written contract of employment. This may be supported by other documents, such as an employee handbook, to provide employees with important information on matters such as sick leave, disciplinary and grievance procedures, dress code and health and safety.
The need to make changes
A number of legitimate business reasons exist why employers may wish to change an employee’s contractual terms. Common motivations include a change in the employer’s financial circumstances or a business restructure; the desire to harmonise contract terms across different teams or divisions; or it becoming necessary to change an employee’s duties, hours, pay rate, job title or place of work to meet the needs of the business.
Regardless of the driver, while employers can change terms of employment, this will usually need to be agreed by both parties. Receiving express agreement from the employee is the safest way to vary a contract, as imposing new terms unilaterally may constitute a breach of contract. Employers intent on making changes should meet with the employee (or, where applicable, their trade union or other employee representatives) to explain the reasons for making the proposed change.
Employers should allow the employee time to consider the proposal and to put forward viable alternatives; for example, if the reason behind the change is financial constraints, the employee should have the opportunity to present other feasible solutions.
It is likely that engaging the employee in the discussion and allowing them to express their views will make them more receptive to the change.
However, instances exist where contractual terms will change without the need for formal consent from the employee. A good example of this is pay rises – rather than varying an employee’s contract of employment, providing the employee with a brief note about the pay change (and keeping a copy for the records) would suffice.
After all, an employee is not going to complain about a positive change to their terms.
Some employers insert a clause into a contract of employment that gives them the flexibility to make changes.
However, any changes must be reasonable, and the employee must be provided with sufficient notice. It is also important that the right to make the change is written in specific terms, as a clause that is too general is less likely to be enforceable.
Providing employees with information about changes
Where it has been agreed to vary an employee’s contract and the change relates to any of the particulars in the written statement mentioned previously, employers must give written notification of the change to the employee within one month of the change taking effect. This is a legal requirement under section four of the Employment Rights Act 1996.
Where an employer changes terms and conditions of employment that are not included in the written statement, they must inform employees of where they can access information about the change. Examples include in the employee handbook or on the organisation’s intranet.
Employee refusals to accept the changes
Where employees refuse to agree to the changes, employers should try to be flexible and willing to compromise. This means talking to them and giving them time to consider and respond to the proposal.
If, after lengthy consultation and negotiation, no agreement can be reached, the employer can serve the employee notice that their existing contract will be terminated, with a new contract containing the new employment terms and conditions offered.
If this is the route to be taken, the correct notice period to help ward off wrongful dismissal claims must be given while being mindful that claims can still be brought.
Where the change applies to 20 or more employees, the employer has an obligation to consult collectively with employee representatives or, if applicable, trade union representatives.
The risk that employees bring a case for unfair dismissal
If an agreement cannot be reached and all other avenues have been exhausted, terminating an employee’s contract and offering to re-engage the employee on new terms may be the only viable option.
However, this brings with it the risk of unfair dismissal claims, even if the employee continues to work under the new terms, as they have technically been “dismissed” from their old contract. An employment tribunal will treat cases like these in the same way as any other unfair dismissal case.
To defend unfair dismissal claims, employers must be able to show they had a fair reason to dismiss and also followed a fair procedure, which is where consulting with the employee comes into play.
In unfair dismissal cases relating to changing terms and conditions of employment, the outcome will often come down to the employer’s ability to demonstrate with evidence that they had a sound business reason for the dismissal.
A tribunal will judge reasonableness from the perspective of what a reasonable employer would do in the circumstances, meaning the reason given must not be trivial, but also does not need to be as extreme as to be the determining factor in a business going under.
Desired outcome aside, the key to success when making changes to employment contracts is to seek good advice before acting, and to discuss, rather than impose, the proposals.