All employers sometimes need to change contracts of employment. An employee’s working patterns might not fit in with business needs, or a particular benefit might have become too costly or difficult to provide. But how can an employer vary its employees’ contracts, while also complying with the law?
1. Be aware of the risks attached to changing contracts
Changing contracts of employment
Employers cannot change employees’ contracts unilaterally.
An employer that makes changes to its employees’ contracts that will have a negative impact on them, without going through the proper process, risks being in breach of contract.
This could result in costly damages and unfair constructive dismissal claims.
If there is a loss of pay, the employee might bring a claim for an unlawful deduction from wages. Damaged employee relations and bad publicity are also potential outcomes.
2. Decide if you really need to make changes to contracts
Making changes to employees’ contractual terms can be difficult and disruptive.
The problems may outweigh the benefit to the organisation. It is worth reviewing the decision and considering other options.
3. Check the employment contract for flexibility
Sometimes employees’ contracts provide for changes to terms and conditions to be made. However, a right to vary needs to be clear and unambiguous.
In Norman and another v National Audit Office, the letter of appointment stated that conditions of service were “subject to amendment” and that significant changes would be “notified” to employees. The Employment Appeal Tribunal held that this did not establish a right to make unilateral changes to the contract.
- If a contract of employment contains a flexibility clause, does the employer have to consult with the employee before it implements a variation to his or her terms and conditions?
- Contract clause providing a specific power to vary the employee’s hours of work
- Contract clause providing a specific power to vary the employee’s place of work
4. Negotiate to reach agreement with all employees
If the contract does not give the flexibility to make unilateral changes to employees’ contracts, it is necessary to get agreement to the change, or risk being in breach of contract.
Getting agreement will involve a process of negotiation. By explaining the business needs, it may be possible to secure agreement.
Employees should be given the opportunity to suggest alternatives. Sometimes it is possible to “buy” agreement by offering different benefits or concessions in return.
Even if the majority of employees agree to the change, this does not mean that all employees can be treated as having agreed – each employee must agree to the change to his or her own contract. This may result in a situation where some employees have agreed and some have not.
- How can an employer improve the chances of an employee agreeing to a change in terms and conditions?
- For how long is an employer obliged to consult with employees to obtain agreement to changes to their contractual terms?
Negotiating changes with unions
5. Negotiate with the union or staff council where appropriate
In some unionised workplaces, contracts may provide for terms to be varied by union agreement. For the employer not to need individual employees’ consent to contract changes, it must be very clear that union agreements are incorporated into individual contracts.
A requirement to consult with a union or staff council about changes to contracts may be included in a collective or other agreement, in any event.
6. Get confirmation of agreement in writing
To avoid ambiguity and disputes later on, it is advisable to require employees to sign to confirm their agreement to the change.
7. As a last resort, terminate and reoffer
Where employees have not agreed to the change to their terms, even after a period of negotiation, the only way to make the change without breaching contracts is to terminate the existing contract and offer a new contract to start when the notice of the original contract expires.
The employer will not be in breach of contract as it will have terminated contracts properly.
Process for changing contracts of employment
There is still a risk that employees may bring a claim for unfair dismissal. The employer will need to be able to show that it acted reasonably and followed a fair procedure, that the change to terms was necessary for its business needs and that it tried to reach agreement by negotiation.
Dismissal with reoffer should be a last resort and the employees should have been made aware of the consequences of not agreeing to the change to their terms beforehand.
- How should an employer weigh up its options where only a small number of employees have agreed to a proposed contractual variation?
8. Carry out the collective consultation process where appropriate
If 20 or more employees are at risk of dismissal, a requirement to carry out the consultation procedure that applies to collective redundancies may be triggered.
Employers need to be aware of this early on, as the duty applies once dismissals are “proposed” or “contemplated”.
9. Notify of change to written statement
If a change has been validly made to the terms and conditions that are notified on the written statement of employment particulars, the employee must be informed of this in writing within one month of the change.