- What does an employer have to do to implement a change?
- Will the proposed changes affect the contract?
- Is there a contractual right to vary the term?
- Implementing a binding change in terms
- Express agreement
- Unilaterally imposing the change and relying on the employee's implied agreement
- Dismissing and offering re-engagement on new terms
A contract of employment can only be amended in accordance with its terms or with the agreement of the parties. However, not all changes during the employment relationship will require the contract itself to be amended. Some will be changes in practice, rather than in the terms of the contract, and in other cases the contract will allow for the proposed variation.
The employer should first decide if its plans involve amending the contract itself. This involves identifying the existing terms of the contract, which may be:
- Express: these are terms that have been explicitly agreed between the parties (either orally or in writing).
- Implied: terms may be implied for a number of reasons, for example, through custom and practice.
- Incorporated: terms may be incorporated into the contract by statute or as a result of a collective agreement.
Some terms will not be part of the contract. These include, for example, benefits that are stated to be non-contractual and "policies" which merely provide guidance on how the contract will be carried out. However, sometimes a policy can become contractual even if it is not stated to be, for example, through custom and practice. Furthermore, an employer should avoid altering non-contractual policies in a manner that is likely to destroy trust and confidence, since this will breach an implied term, or in a manner that is discriminatory.
If the proposed change will affect the existing term of the contract, the employer will not need to amend the contract if:
- The existing terms are sufficiently broad to accommodate the employer's proposals.
- There is a specific right for the employer to vary the contract in this way.
- The contract gives the employer a general power to vary its terms.
- Any ambiguity in the terms of the contract will be construed against the employer.
- Any specific flexibility clauses will be given a restrictive interpretation by the Courts and may be limited by an implied term (for example, an obligation to exercise the clause reasonably).
- General flexibility clauses can probably only be used to make reasonable or minor administrative amendments that are not detrimented to the employee.
If the employer's proposals involve altering the existing contract and there is no contractual right to make such a change, the employer could:
- Get express agreement to the new terms (either from the employee or through a binding collective agreement).
- Unilaterally impose the change and use the employee's conduct to establish implied agreement to the new terms.
- Terminate the existing contract and offer continued employment on the new terms.
The employee may agree to the employer's proposals orally or in writing (although an oral agreement is clearly more vulnerable to challenge at a later date).
For the contractual amendment to be binding, the employee must receive some form of benefit in return. In many cases, the employee's continued employment will be sufficient consideration, but there may be problems when the change does not have an immediate effect (for example, when the employee's rights on termination are altered).
Collectively agreed variations may bind the employee if the union (or other collective body) acted as the employee's agent during the negotiations or the collective agreement containing the change is incorporated (either expressly or impliedly) into the employee's contract.
This strategy is more likely to be effective if there is an immediate practical effect on the employee (for example, a pay cut) and they continue to work without objecting. However, employers should not assume that silence is sufficient to indicate implied agreement, especially if there is no immediate impact on the employee.
If the employer imposes the change it will be a breach of contract. The employee can:
- Comply with the new terms but work "under protest" and claim for breach of contract or (if their wages have been reduced) unlawful deductions from wages. This is sometimes known as "standing and suing".
- If the change is sufficiently fundamental, resign and bring a claim for constructive dismissal.
- If possible (for example, where there is a change in duties or hours), refuse to work under the new terms.
This approach avoids the risks involved in unilaterally imposing the change on the employee (see above). However, as a result, the employee may be able to claim:
- Wrongful dismissal, unless the employer gives the appropriate period of notice (or makes a payment in lieu of notice).
- Unfair dismissal, 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.
A refusal to agree to a change in contracts will normally amount to some other substantial reason for dismissal under section 98 of the Employment Rights Act 1996 (SOSR), provided there is a sound business reason for the change. Acting reasonably includes following a fair procedure and so the employer must give the employee sufficient information about the reasons for their possible dismissal, and the opportunity to state their case at a hearing. A tribunal will also look at other factors such as whether the employer has consulted employees over the changes with a view to agreement, the reasons why the employee has rejected the change, and whether the majority of employees have accepted.
If the employer is using this approach to make changes to several employees' contracts, the dismissals will be treated as redundancies for certain purposes. If it is proposing to terminate the existing contracts of 20 or more employees, it must notify the Secretary of State and comply with the collective consultation obligations under the Trade Union and Labour Relations (Consolidation) Act 1992 (see information on consultation obligations). Failure to comply with the collective consultation obligations may result in the employer being ordered to pay up to 90 days' actual pay to each affected employee. Failure to notify the Secretary of State is a criminal offence.
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This information has been prepared for general interest and it is important to obtain professional advice on specific issues. We believe the information contained in it to be correct as at the time of publication. While all possible care is taken in the preparation of this, no responsibility for loss occasioned by any person or refraining from acting as a result of the material contained herein can be accepted by the firm or the authors.