03 April 2020 - Article
In the current economic downturn the press inevitably focuses on redundancies in particular as the means by which employers cut their costs. However, many employers will wish to avoid redundancies if possible and may instead try to reorganise their businesses as a means of adapting them to the unpredictable economic climate. This is likely to involve changing the terms and conditions of employees whether by altering provisions such as reporting lines and job descriptions, or cutting overheads by reducing salaries and benefits packages. How should employers go about making these changes whilst minimising the risk of claims from their employees?
We set out below some of the key issues that employers need to consider.
There are a number of ways of varying an employment contract. Broadly speaking these can be divided into the following: -
Variation by express agreement
In this case the employer proposes new terms and the employees accept them. In such cases it is preferable to get agreement in writing so as to avoid any dispute in the future about what exactly was agreed.
Renegotiation of a collective agreement
This arises where an employer comes to a new collective agreement with a recognised trade union. This will only be relevant to cases where the individual employees' contracts incorporate the terms of the collective agreement.
Variations permitted by the contract
Employers need to check the current contracts of employees. Some of these might contain flexible provisions which allow them to change certain aspects of the employment contract without the agreement of employees. Examples often include mobility clauses and widely drafted duties. Employers should be wary however of relying on overarching variation clauses as these are likely to be subject to an overall requirement to act reasonably, unless the changes are minor.
Unilateral imposition of new terms
In this scenario the employer simply introduces the new terms and hopes the employees will accept them.
While the employer will technically be in breach of contract, it will hope that the employees either explicitly accept the new terms or impliedly do so by continuing to work without protest. In such a case any dissenting employees have the option to either stand their ground and sue for breach of contract, resign and claim constructive dismissal (if the breach of contract is sufficiently fundamental) or refuse to work on the new terms. While this is a common choice for employers it is fraught with risk.
Dismissal and reengagement on new terms
This follows on from some of the above options. If the employer cannot reach agreement with the employees and does not wish to risk a breach of contract action by imposing new terms, it can simply dismiss the employees and offer reengagement on new terms. The employer must be able to show that there is a valid business case for making the changes in order to show that there is a fair reason to dismiss the employees.
The employer's position is also bolstered by the argument that employees who refuse the new terms have failed to mitigate their losses and should not therefore be compensated.
This scenario is however risky in that until April of this year employers may have to comply with the statutory dismissal procedures. Moreover if 20 or more employees are involved they must also comply with the statutory rules on collective consultation. It is worth noting however that there is an exemption to the statutory procedures where an employer dismisses and offers to reengage ‘all the employees of a description or in a category'. However, there is little judicial guidance on what amounts to ‘a description' or ‘category'.
Following the repeal of the statutory procedures in April 2009, there will no longer be issues in relation to this (although the rules on collective consultation will be unaffected). However, employers will still face ordinary considerations of fairness and will still need to show a valid business ground for the dismissals and evidence of a fair procedure.
Whichever route the employer decides upon it should proceed with caution and care. Whilst commercial considerations might dictate that swift solutions are required, the consequences of getting any of the above processes wrong are severe. Employers need to plan ahead and ensure that their decisions are properly documented.