Experienced, astute employment law advice on the lawfulness of employment contract variations

Varying a contract of employment

We assist employers to successfully alter employment terms, including reducing the hours employees work and for which they are paid, changing bonus structures and harmonising. If any claim is made we defend employers and mitigate the costs.

We are helping many employers deal with lay offs, sabbaticals and reduced hours to tide them over the coronavirus downturn. We are always happy to discuss a problem and provide an initial scope and fee estimate.  Please do call us.

To help employers we look at:

Key risks of changing employment terms

Any change to a UK employment contract including bonus terms technically requires the employee’s consent. It doesn’t matter if the employment contract doesn’t specify the condition or benefit.  For example, the provision of a subsidised staff canteen could become a contractual entitlement over time even though the employment contract does not specifically mention the benefit of the staff canteen.

How can employers temporarily reduce spending on wages?

During uncertain times, such as the credit crunch of 2010/11 or the current coronavirus outbreak, employers may be forced to reduce how much they spend on wages. While they could make employees redundant, this would leave them short staffed when conditions improve. Therefore, employers might instead consider laying off employees or putting them on short time working. Both options usually require that the employee agrees to a change to their employment contract – though some furlough agreements may have already inserted these provisions into employee’s contracts.

Consultation is still required

To ensure that such a change is properly achieved, and that the employer does not inadvertently expose themselves to claims for unfair dismissal, it is important that a proper consultation process is followed. Gannons can help advise on this process and draft necessary communications.

Laying off

Laying-off involves an employer taking an employee off work and pay for a period of time. Short time working is similar, but rather than providing no work refers to the situation where the employer provides reduced work and pay. Both situations require consultation unless they are permitted by an express term of the employee’s contract.

Key risks of changing employment terms

Any change to a UK employment contract including bonus terms technically requires the employee’s consent. It doesn’t matter if the employment contract doesn’t specify the condition or benefit.  For example, the provision of a subsidised staff canteen could become a contractual entitlement over time even though the employment contract does not specifically mention the benefit of the staff canteen.

Recently many employers have used the Coronavirus job retention scheme to furlough workers as an alternative to redundancy. In most cases, especially where the employee receives only the 80% of their wage which covered by HMRC, the employment contract had to be amended to allow the employer to place the employee on furlough.

Some furlough agreements also amended the employee’s contract to insert lay-off provisions or to allow the employer to place the employee on short-time working. Therefore, employers should consider any furlough agreement alongside the employment contract when they are considering making changes to the terms of employment.

Can the employer change the contract without employee’s consent?

If an employer unilaterally changes an employee’s employment contract, without their express or implied consent, this is a:

  • Breach of contract which could give rise to a claim of constructive dismissal; and
  • Repudiatory breach, possibly which can leave the employer’s restrictive covenants unenforceable.

Ideally, employers seek voluntary agreement. This avoids forced changes, redundancies and litigation. The law stops employers using their greater bargaining position to impose contractual variations on employees against their will.

Changing bonus terms

Many employers are caught out when relying on an express discretionary bonus clause. Employees have successfully argued that custom and practice over many years has, in reality, resulted in a more narrowly constrained discretion than the employer believed to be the case.

Whether employers can make savings by cutting bonuses depends on the employment contracts’ express terms, and the employer’s custom and practice.

Steps employees can consider

The risk for employers lies in the potential employment law claims arising if the employment contract is changed without consent. Typical employment law claims, depending upon the facts for an employee include:

Work under the new employment terms in protest

Sometimes termed standing and suing.  The employee chooses to work under the new terms,  but protests, i.e. makes clear they do not accept the terms. Then the employee:

  • Tries the new arrangements, for a reasonable period before, perhaps, objecting;
  • Has an ongoing claim for breach of contract;
  • Can claim for any financial loss;
  • Can claim for losses going back six years. Potentially, a significant liability.

Where the change imposed is substantial, the employer may be deemed to have dismissed the employee and re-engaged them on new term.  In this situation, the employee may also bring a claim for unfair dismissal.

Claim constructive dismissal and breach of contract

An employee can first resign, then claim constructive dismissal. However, the breach of contract must be a fundamental i.e. goes to the root of the contract.

Refuse to work under new employment contract terms

The employee could refuse to accept the new terms and continue to work under the old terms. This situation is different to where an employee works under the new terms, but clearly protests. Employers have to manage the obstructive employee.

In the situation where an employee resists an employee’s request that they move to short-time work or consent to being laid off, refusal may be grounds for redundancy, provided that the employee has acted reasonably.

Changing employment contract by consent

There are a number of ways employers can successfully change employment terms.  The easiest way is to offer an incentive such as a pay rise if the employment changes are agreed.  Changes to restrictive covenants are often implemented in connection with a promotion as often the employee will agree to the changes.  In other cases employers may have to consider implied consent and other possibilities as discussed below.

Employment terms altered through custom and practice

Custom and practice may be considered to amount to contract alterations. Often employees argue:

      • Their job role or working conditions have changed from the contract’s express written terms;
      • That in reality, they’ve been doing a different role to that listed in the contract;
      • That an initial informal period of partial home working has become a contractual right.

Policies and procedures

Staff handbooks, policies and procedures can if appropriately drafted be treated as separate from the employment contract.  Separation means that employers can usually change these without breaching the employment contract.

Nevertheless, putting everything in policies rather than the employment contract may not work. In employment law, it’s the substance, not the label, that counts.

We work with employers introducing change to improve business. We are helping many clients reduce their payroll costs during the economic downturn. Please do give us a call to discuss your query on 020 7438 1060.

Let us take it from here.

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