Legal implications of rolling out new salary structure

We are introducing a new salary structure with a significantly lower basic salary, but a large element of commission to incentivise employees. Compared with the present salary and bonus arrangements, a number of staff are likely to earn less than they do now. However, for high-performing employees, there is the potential to earn substantially more. How can I implement the change?

A significant change imposed without agreement to an employee’s terms and conditions of employment will result in successful breach of contract and unfair dismissal claims if a fair process is not followed. You need to fully consult with all employees and agree on the changes.

However, agreement is not always forthcoming. Consequently, the law does recognise that employers have to adapt to changing market conditions, and that sometimes the contract of employment must be varied to reflect this. Therefore, a single employee cannot veto a change of this kind.

If you consult with employees and give reasonable and due consideration to objections and alternative suggestions that are put forward, but deem those suggestions to be unworkable, you can terminate the employee’s original contracts and offer new ones in their place.

If staff allege unfair dismissal as a result, you will have a reasonable defence. In determining whether you have acted fairly, a tribunal will consider a number of factors. These include the reasons for the change, the level of consultation that took place, the objections raised, and the number of staff that agreed to the change.

If you propose to dismiss employees, but immediately re-engage them on new contracts, there is no requirement to comply with the statutory dismissal procedure introduced by the Employment Act 2002. However, you must still act reasonably at all times, putting proposals in writing and discussing matters openly with employees as part of a formal consultation procedure.

The better your business case for changing the contractual terms, and the more reasonably you behave, the less likely that an unfair dismissal claim will succeed.

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