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Changing employee terms and conditions: Proceed with caution

Companies need to change the terms on which they do business all the time but changing employee  terms and conditions of employment is not as easy. The contract between employer and employee is regarded as a legally binding agreement and neither party has an automatic right to change any terms or clauses.

Our advice has always been to keep the minimum number of terms within the employee contract of employment and keep others – such as discipline, grievance and company rules – separate, giving you the ability to make amendments quickly. However, what if you need to make changes to overtime rates or working hours to ensure your business remains profitable? Both of these terms sit squarely within the contract of employment and give you the added risk of employees raising tribunal claims.

Risk reduction: talk to your employees

The safest way to change terms and conditions is to obtain the agreement of your employees. “Easier said than done,” you might say. After all, why would anyone give up a premium overtime rate or work more hours for the same salary?

Nevertheless, employees may agree if you provide a persuasive business case for the need to make the changes. Your competitors may be winning ground and you need to be more cost effective to win back customers. Outside factors may be forcing you to change your pricing structures. Whatever the reason is, staff are pretty smart when it comes to assessing job security. If they judge that their jobs could be at risk further down the line and you provide the problem in an empathetic manner, they may agree to the changes you need.

Being prepared: a ‘right to change’ clause

One tactic that will help slightly is including a statement within the contract of employment that gives you the right to amend the terms. However, no employment tribunal will give you carte blanche to change what you like when you like just because you have included this. It’s imperative that you maintain the implied term of mutual trust and confidence that exists within all employee contracts or staff may react by resigning and claiming constructive dismissal.

An example of the kind of statement that you can include is:

‘The employer reserves the right to make reasonable changes to the terms of this contract from time to time and following consultation.’

By including the words ‘reasonable’ and ‘consultation’ in the statement, any claim that is raised may be mitigated if you can demonstrate that you followed these principles when implementing changes.

Relying upon ‘some other substantial reason’

If you already have contracts of employment in place and they have no statement that allows some rights to amend employment terms, it is still possible to make the changes that you need. However, you will need to dismiss your employees on their existing terms and re-employ them on new contracts that contain the revised terms.

Of course, as soon as the word ‘dismissal’ is used, your employees may react emotionally, which is why constructive discussion is so important, regardless of the route that you take to implement the changes. By following the dismissal and re-hire process, you will be relying on the ‘some other substantial reason’ defence should any employee make a claim at tribunal. To justify your actions, the reason for the changes must be important to the business, such as the scenarios described earlier in the article.

Bear in mind that the principles of redundancy come into play if you wish to dismiss and re-hire employees. You must consult with your staff in line with redundancy legislation or, again, you risk unfair dismissal claims.

Principles of changing employee terms and conditions

By following these stages in making changes to employee contracts, you will minimise the danger of disputes and claims:

  1. Explain everything fully – and do it face-to-face, backing up with a written document if necessary
  2. Make sure that the change you propose is reasonable and that there is a good business reason behind it
  3. Make sure that the change proposed is proportionate to the problem that needs to be solved
  4. Consult with employees and listen properly to their feedback
  5. Give adequate notice of the change in line with notice terms in the contract of employment
  6. Support employees where they are finding the process difficult – be understanding
  7. Take special care if you employ any staff who transferred to you under TUPE as they are protected from any contractual changes connected with the transfer.
  8. A well constructed action plan is vital if you need to make changes to contracts of employment without falling foul of employment law.

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