Changing terms and conditions

Overview

• Once terms of a contract of employment have been agreed between the employer and employee, any attempt by one party to vary them without agreement will usually be a breach of contract.
• As the employment relationship develops, change is inevitable - in this respect an employment contract is unlike a typical legal contract which is set in stone and does not allow for continuing changes.
• The steps an employer must take to introduce changes will depend on the significance of the proposed changes (particularly their consequences for the affected employees), and the express terms and implied terms of the contract of employment. The employer's reasons for needing to make the changes will also be relevant.
• It is an implied term of an employee's contract that he or she will obey their employer's reasonable and lawful instructions. This means that an employer can introduce rules regulating the conduct of its employees at work (e.g. by introducing a harassment or no-smoking policy) without breaching contracts of employment.
• Employees are expected to adapt to new working methods or techniques, but this must not alter the work that the employee is required to do to such an extent that the work involved is no longer of the kind they were employed to do.

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Variation of contract by consent

• A contractual variation by express agreement on the part of the employee is the best way to change contractual terms.
• An employee may agree to new terms either orally or in writing, although it is preferable to get written agreement to any changes.
• The employee should receive some form of benefit in return in order for the change to be contractually binding (e.g. a one-off payment or linking the change to salary reviews).
• See the Varying contractual terms section of Policies and Documents for draft letters an employer can use when seeking to introduce contractual changes by agreement (subscribers only).

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Imposing contractual changes

• Another way of implementing a contractual change is for an employer to introduce it unilaterally. However this approach can have significant legal and practical risks.
• If an employer tries to impose a change in contract terms without the employee's agreement, the employee has a number of options:
  • accept the change
  • continue to work under the new terms but make clear that he does not accept them and is working under protest, and reserves the right to sue for breach of contract
  • resign and claim constructive dismissal and breach of contract
  • refuse to work the new terms
• If the employee does not make it clear early on that the changed terms are not accepted, he or she may well be treated as having impliedly agreed to the new terms; this is likely to be most effective if the change has an immediate effect (e.g. a pay cut) but is less likely to be effective if the change does not have any immediate impact (e.g. a new mobility clause).
• If the employee is dismissed for refusing to work under the new regime he or she may be able to claim unfair dismissal or even unlawful discrimination in some cases.

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Termination and re-engagement on new terms

• If employees will not agree to contractual changes, another option is to dismiss all the employees and engage them all on new contracts with the changes incorporated. However the employer runs the risk of employees claiming wrongful and/or unfair dismissal.
• Where an unfair dismissal claim is made, a tribunal will review the entire process to assess whether the employer has acted reasonably, not only in requiring the change, but also in the procedure by which it implemented the change.
• A tribunal will look to see whether the employer acted reasonably, in all the circumstances, in treating the reason for dismissal (e.g. a business reorganisation) as sufficient. This will include balancing the disadvantages to the employees of the new contractual terms against the advantages to the employer in implementing the reorganisation.
• An employer who proposes to dismiss 20 or more employees will be affected by collective consultation obligations.
• Specialist legal advice should always be taken when dismissing and re-engaging on new terms.
• See the Varying contractual terms section of Policies and Documents for specimen letters covering dismissal and rehiring on new terms and conditions of employment (subscribers only).

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Flexibility clauses

• Whether or not an employer has the right (express or implied) to make/require a change in employees' contracts depends on the relevant employees' contracts of employment (which will include contractual sections of any staff handbook and any incorporated terms from other sources).
• Some contracts contain express flexibility clauses which allow the employer to change the place of work (mobility clauses) or duties. Such clauses, if drafted clearly enough, can give the employer some latitude in changing contractual terms. But, if the clause is too wide or is exercised unreasonably, there will be a risk that it cannot, legally, be relied upon. See the Flexible working section of Policies and Documents for a specimen flexibility clause (subscribers only).
• Express flexibility clauses in a contract must not be exercised in an arbitrary or oppressive way. If they are it will more than likely breach the overriding mutual term of trust and confidence and justify the affected employees resigning and claiming constructive dismissal. Reasonableness is the key.
• See the Varying contractual terms section of Policies and Documents for a specimen letter for use when exercising flexibility as to job function under the contract (subscribers only).

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Discretionary benefits

• If benefits such as a bonus or private health insurance are genuinely discretionary, an employer can reduce or withdraw these once they have given the employee reasonable notice.
• But, just because an employer labels a particular benefit 'discretionary', does not automatically mean that the benefit will not in fact be a contractual entitlement.
• Case law, particularly involving bonus payments, has highlighted the need for employers to take specialist advice before withdrawing or varying such terms.

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Union agreement

• In most cases changes agreed by the union will have no effect on individual contracts of employment.
• However a union can effect variations to the contract of individual employees where the union is acting as agent for the employees, or there is an express or implied term in the employee's contract incorporating agreements made between the employer and the union.

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TUPE

• Where a business has been transferred from one employer to another, it is quite common for the new employer to want to change terms of employment, perhaps to bring them into line with those of existing employees.
• If changes are not connected with the transfer, the normal rules apply, i.e. if employees consent, changes will be effective.
• But if the changes are connected with the transfer, the Transfer of Undertakings (Protection of Employment) Regulations 2006 apply and it will only be possible to change the contract for economic, technical or organisational reasons entailing a change in the workforce.
• The mere passage of time will not break the link with the transfer but the longer the gap between the contract change and the transfer, the more likely it is that some event will have occurred to break the link.
• The law in this area is complex and employers should take professional advice.

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Resources

• Varying a Contract of Employment

• Change an employee's terms of employment

• Contracts of Employment

Worksmart (TUC)

• Changes to Contracts of Employment

Checklist

• Changing Terms and Conditions of Employment

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