Changing the Terms and Conditions of an Employment Contract
by Tamara Barbeary & Sunny Rafaeli
An employee’s terms of employment are bound to change during the course of their employment. Many changes to an employment contract, such as an annual pay increase, will occur through mutual consent. However, occasionally, either employer or employee may wish to make changes to the contract that the other party is less happy to accept. For example, a business which finds itself running into financial difficulties may need to reduce salaries in order to cut costs.
Generally, a contract of employment may only be amended in accordance with its terms or with the mutual agreement of all the parties. If the desired change is not authorised by the contract, there are three ways (outlined below) in which an employer may vary the contract, albeit with associated legal risks.
Even where the employment contract appears to allow the proposed change, it does not mean that an employer can do so with impunity. There are limitations in regard to interpretation of the contractual provisions and an employer cannot exercise its right unreasonably.
1. OBTAIN EXPRESS AGREEMENT TO THE CHANGE
Where there is no contractual right to impose a change, obtaining the agreement of an employee to a change in their contract may be the simplest and safest option from a legal and practical perspective. Without this agreement, an employer could face potential claims for unfair dismissal or breach of contract. Forcing a change is also likely to lead to decreased staff morale.
Express agreement is effective to vary a contract of employment and strong evidence of mutual agreement is required to establish that the terms have been varied. An employee’s express agreement to a change to contractual terms must be given voluntarily and be free from duress.
There must also be some consideration (some benefit passing from each of the parties to the other) for an agreed contractual variation to be valid. Consideration can sometimes simply be the employee’s continued employment. However, if the change is not due to take effect until some point in the future (such as a change to a notice period), it will be more difficult for employers to rely on continued employment as consideration for the change. In these cases, it is important for employers to adopt a cautious approach and allocate some form of consideration to the change (for example, expressly linking the change to a pay rise and documenting this in writing).
2. UNILATERALLY IMPOSE THE CHANGE
Where the employee does not wish to accept the change and the contract does not allow for the proposed change, an employer may choose to impose the change unilaterally. However, imposing a contractual change without the employee’s express or implied agreement will constitute a breach of contract and the original terms of the contract will remain in place.
The employee can respond to the breach in the following ways:
The best outcome for an employer adopting this type of approach would be for the employee to accept the new working arrangements. If the change is of immediate practical effect (such as a reduction in pay), and the employee continues to work without a clear objection after the change, the employee may be taken to have impliedly agreed to the change, unless they make their disagreement evident.
However, each case depends on its specific facts and employers should not automatically assume that silence is sufficient to indicate implied agreement.
3. DISMISS AND OFFER RE-ENGAGEMENT ON NEW TERMS (“FIRE AND REHIRE”)
In the absence of contractual flexibility and express agreement to a change, an employer may decide that they still want to go ahead with the change. In this case, an employer’s best option may be to terminate the existing contract and offer continued employment on the new terms.
However, this should be treated as a last resort and should only be considered after a consultation with the affected employee/s. This is because the employee may be able to claim wrongful dismissal, unless the employer gives the appropriate period of notice (or makes payment in lieu of notice) and unfair dismissal (if the employee has at least 2 years’ service), 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.
In the context of changing terms of employment, employers usually rely on the potentially fair reason of some other substantial reason for dismissal under S98 of the Employment Rights Act 1996. However, redundancy is sometimes used in the alternative where the change gives rise to, or was proposed in, a redundancy situation (for example, a change in workplace).
Government’s response to “fire and re-hire”
In 2020, the Government asked ACAS to gather evidence and produce a report on the use of “fire and rehire” practices, which have become widespread during the Covid-19 pandemic. The report was received by Government ministers but has not yet been made public.
On 27 April 2021, MPs debated this “fire and re-hire” practice. A Commons Library briefing paper, Fire and Rehire Practices, was published a day before to inform the debate. During the debate, Business Minister Paul Scully MP said that the government is “fully considering” publishing the ACAS report and that “fire and re-hire” should only ever be used as an option of last resort.
At the time of writing this article, the Government had not committed to taking any action but it is expected that any proposed steps will be set out in due course.
5 TOP TIPS FOR EMPLOYERS ON CHANGING A CONTRACT OF EMPLOYMENT
Tip #1: Consider whether the proposed change will affect the contract of employment and whether there is a contractual right to make the change
|Will the proposed change affect the contract?||Is there a contractual right to make the change?
|Where a change does not affect the contract itself, it will not need to be amended. In order to determine whether a proposed change will constitute a variation of the contract, it is first necessary to identify the terms of the contract. These may be expressly set out in writing, implied by ‘custom and practice’ or incorporated by statute or as a result of a collective agreement.
|The contract itself may contain certain clauses which permit the required change without the agreement of the employee. This may be the case where, for example, the contract contains terms which are sufficiently broad to accommodate an employer’s proposals.|
|If an employer wants to change a non-contractual term, they will be free to do so without seeking the agreement of an employee. However, employers should act reasonably in doing so and ensure that any action taken does not breach the implied term of trust and confidence or contravene the Equality Act 2010.
|However, it is wise to still proceed with caution for various reasons, including the fact that any ambiguity in terms will be construed against the employer.
Tip #2: Consider why the change is needed and listen to and communicate with employees
- Often, the reason for the change will be the financial position of the business.
- It is advisable for an employer to ensure that they communicate and hold consultations with the affected employee/s. Explaining the reason for the change will make it more likely for the employee to understand the business needs behind the decision and an employee who feels they have been involved in the process is more likely to agree to an amendment.
- Also, if the alternative is, potentially, a more formal restructuring (and ultimately job losses), employees should be made aware of this. They are then more likely to view the proposed change as the lesser of two evils.
Tip #3: Consider offering employees an incentive to encourage them to accept the change
- Offering an additional benefit in return for a detrimental change is often an effective way to secure agreement to a change. The benefit does not have to be financial, and employers could consider whether there are any innovative ways to induce employees to agree to the proposed change. For example, more flexible working patterns could be offered while cutting pay.
- Securing agreement to a proposed change will be more difficult if an employee already considers that they have a “bad lot”. Employers could consider linking the introduction of a change with something beneficial that will happen to an employee at a particular time.
Tip #4: Obtain written confirmation of any agreement to a change in the contract
- It is advisable for employers to obtain written confirmation of the agreement to change the contract, as oral agreements are more likely to be contested at a later date.
- If the change involves any reduction in remuneration, it is particularly important for an employer to obtain written consent to the change in order to successfully defend any claim for deduction from wages which may result from its imposition of the change.
Tip #5: Carry out the statutory collective consultation process where appropriate
- If 20 or more employees are at risk of dismissal, a requirement to carry out the statutory consultation procedure that applies to collective redundancies may be triggered. Employers may consider familiarising themselves with the specific obligations under Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992.
Disclaimer: The content of this article has been prepared for informational purposes only and does not constitute legal advice nor does it give rise to a solicitor/client relationship. Specialist legal advice should be taken in relation to specific circumstances.
If you do require specific assistance in relation to any of the above issues or any other employment related matters, please contact our specialist team here at Lennons.