Changing an employee’s terms and conditions
During the course of the employment relationship, it is likely that employees’ terms of employment may change. Given the changes on businesses as a result of the impacts of Covid-19, many businesses are opting to make commercial changes to their employment contracts in order to save costs or increase efficiency. However, there are many reasons as to why you may choose to change an employee’s terms of employment. These are as follows:
- A change in the businesses financial circumstances – this is likely to be the case as a result of the impacts of Covid-19;
- To meet the needs of the business i.e. due a reorganisation;
- To update the employees contract i.e. if the contract is outdated and not compliant with updated laws;
- A promotion of the employee;
- To harmonise contracts across different teams or areas; or
- A change instigated by the employee following a change to their working arrangement i.e. a flexible working request.
Whilst changes can be made to the employment contract, you cannot seek to contract out of the employment rights afforded to employees in accordance with the Employment Rights Act 1996 and must comply with relevant legislation which provide rights to the employee for example, the Working Time Regulations 1998 SI 1998/1833; National Minimum Wage Act 1998 and the Equality Act 2020.
The first point to consider is whether the changes are permitted by the contract or not?
You should firstly consider if the proposed change is permitted by a flexibility clause within the employment contract. This may be a specific clause relating to a particular term i.e. a mobility clause or may be a general flexibility clause. A flexibility clause provides you with the power to vary some of the terms in the employment contract without the need to obtain the employee’s consent.
However, this must be a reasonable change and not a change to a fundamental term such as a reduction in the employee’s hours or pay. If you intend to change a fundamental term, it is likely that you would need to consult with the affected employee in order to prevent a breach of the implied duty of trust and confidence which may lead to a constructive dismissal claim.
Obtaining agreement from the employee
Where the contract does not permit the change to the employee’s terms, you may seek to vary the contract with the express agreement of the employee. The consent can be oral or given in writing however, we recommend that this is provided in writing, especially if you are seeking to change a fundamental term of the employee’s contract as this will help to avoid any future disputes.
Consideration for the change is also required for the variation to the contract to be effective. This means that the employee must receive some benefit in consideration for the change.
You may choose to engage in consultation with the employee or this may be a requirement under the contract. This should be a two way-process. You should explain the rationale behind making the change and invite the employee to discuss his/her concerns and to suggest any alternatives. You should consider any suggestions made by the employee.
Trade union representatives may agree to the change in terms on behalf of the employee. If the employee is bound by collective agreements, this should be set out in the employment contract or may be implied if the employee usually agrees to contractual changes with the trade union.
Options if employee does not agree to the changes:
If the changes are unfavourable to the employee, there is a risk that the employee will not agree to you making the change to their contractual terms. In this situation, your options and associated risks are as follows:
- You may force the change on the employee, taking the risk of a potential claim for breach of contract. In this case, the employee may have the option to resign if you are seeking to make a change to a fundamental term of the contract, giving rise to a potential claim for unfair constructive dismissal;
- You may decide to impose the change by dismissing the employee and then re-engaging on new terms. The employee must be provided with proper notice in accordance with its existing contract or you may face a potential breach of contract claim. This is therefore a risky option;
- You may agree a suitable alternative to the change with the employee; or
- You may dismiss the employee for, “some other substantial reason”. This is a potentially fair reason and you would need to demonstrate a fair process before dismissing. There may be a risk of an unfair dismissal claim.
Implementing the changes
Once the change has been agreed (or permitted), you must provide the employee with a written statement setting out the change within 1 month of the change taking effect. This is a statutory requirement under s4 of the Employment Rights Act 1996.
How can we help?
If you would like any advice on how to go about changing contractual terms, please contact our employment partner, Kate Brooks at firstname.lastname@example.org or call 01202 525333 and request to speak with a member of our employment team.