Reducing working hours and pay – legal dilemma

I have been told by my managing director that the business is finding it hard to generate enough work to keep our staff on full time. He does not want to impose lay-offs if he can avoid it. What he’d like to do is impose short-time working and reduce working hours from 40 to 32 per week, and only pay for 32 hours. What’s our legal position?

The basic position is that an employer cannot vary an employee’s employment contract unless there is either a term in the contract allowing the variation, or the employee has expressly agreed to the change. In the absence of either a term or agreement, the most common approach for an employer to take is to terminate the employee’s contract and immediately re-engage them on revised terms. Alternatively, an employer may seek to impose the change and rely on the employee continuing to work under the revised terms to establish implied agreement. However, this often leads to a very disgruntled workforce, some of whom may bring claims for constructive dismissal and unlawful deduction from wages, so should be approached with caution.

To vary terms, the first step for the employer is to consult with the employees. If the reasons for the reduced hours and pay are fully explained to the employees, agreement may be reached. Also, if the employer sets out what the consequences of failure to agree will be (ie, potential redundancies), this may assist in reaching agreement.

If no agreement is forthcoming, then terminating and re-engaging the employees involves further consultation. If 20 or more members of staff will be affected, then the statutory collective consultation provisions will apply and the employer will also need to consult with employee representatives.

In the scenario of termination and re-engagement it will be open to a disgruntled employee to make a claim for unfair dismissal, as, despite the re-engagement, there has been a dismissal at law. The employer would then have to demonstrate that it had a potentially fair reason for the dismissal (in this scenario that is likely to be either ‘some other substantial reason’ or ‘redundancy’) and that a fair process had been followed.

In reality, where employees can see genuine economic difficulties for the employer, workforce agreement to short-term changes that save jobs in the longer term may well be forthcoming.

Gagandeep Prasad, solicitor, Charles Russell

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