Changing Terms and Conditions of Employment

Having trimmed down through redundancies employers are now exploring other ways to cut employment costs. The commercial driver is to maintain staffing levels so to cope in the economic recovery and to avoid future expensive hiring and training costs.

The press is full of news of pay cuts and freezes, reductions in working hours and nil bonus payments. All of these potentially entail changes to terms and conditions for which employee consent is required. If this is not obtained and changes are imposed unilaterally this can trigger a number of potential claims by all affected employees and significant financial exposure and business disruption. Employees could resign and claim constructive dismissal, but most likely in this climate you will have the uncertainty of employees remaining in post but claiming they are working under protest. This potentially allows them to claim at the time they leave they are entitled to their original terms relating to pay, benefits etc. Don’t forget that restrictive covenants will be rendered unenforceable by a breach of contract and employers may inadvertently fall into the collective redundancy regime and the onerous consultation obligations this entails if it plans to dismiss employees who refuse to accept the change and offer to re-employ them on the new employment contracts incorporating the changes. The possibility of paying 13 weeks’ actual pay to all affected employees for a failure to consult is a sobering thought. Finally, if that doesn’t make you think carefully about introducing changes, the nature of the change and the way in which it is made could give rise to discrimination claims, for example, a salary cut may be a percentage of salary or a flat rate and it is possible that certain sections of the workforce may be impacted more than others whichever approach.

So what are our tips for successfully implementing changes?

1. Process is the key. In most cases consent to changes would be obtained through consultation afterwards employees could be asked to sign a document acknowledging their agreement to the change. However, employees are inherently suspicious about signing up to documents and asking someone to agree to a salary cut, for example, is a bit like asking a turkey to vote for Christmas. Consultation is time consuming when the business needs rapid change, requires detailed planning and has to be carefully managed. It does not always produce agreement across the board. It is worth spending time weighing up the strategic and a tactical considerations around the change so you can develop a process to fit your needs, for example:
   • How much resistance you are likely to have encountered has changed and from which affected employees.
   • When is the most available time to achieve consent? There never is a good time to changes but the current climate does assist.
   • The impact on the business of the changes from an employee relations perspective. The changes and the process of consultation may end up being de-motivating as a distraction particularly for senior employees who you need to be focused on the business.
   • How quickly you want or need to implement the changes.
   • Whether you think your employees have the funds and stomach for a legal fight.
   • Do you wish to rely on the post-termination restrictions.
   • Whether the changes could lead to you becoming vulnerable to raise competitive of key staff who may see you as a business in trouble.
2. Meeting the needs of the business may entail taking a calculated risk by, for example, giving a reasonable amount of notice to the changes but telling employee that they will take affect on a certain date. Employees can be invited to raise queries but not asked for consent. This is obviously quicker but is not without the risks mentioned above. However given the nature of the changes they are likely to have immediate consequences and therefore an employer should be able to argue that their employers have impliedly consented to the change by continuing to work. Also employees can see from the press this is happening across the economy – you can’t take this entirely for granted but you are most likely to pull this approach off in this climate.
3. In order to avoid falling under the collective consultation regime, in any discussion or written documentation about the process of implementing changes, there should be no indication of a proposal to dismiss employees who do not agree to the change. The furthest you might go is to say that this might be something you would consider depending on the whether employees object.
4. Carefully plan all communications with employees about the change. Employees respond better when they feel that their employer is being as transparent as it can be about the reason for the changes. The downside is that in emphasising the difficulties the business is facing you potentially de-motivate employees who see the business as a lost cause. If possible you need to balance the negative messages with positive outlook for the future.
5. The implementation of proposed changes works best if senior staff lead the way by changing their own salaries etc. This could possibly be done in a first phase of changes and would mean that a more junior staff are more likely to buy into the changes.
6. Try to anticipate the questions you will be asked by affected employees so you have your answers ready or have accommodated concerns in your plans. One of the most obvious questions is how long will the change be effective. You might wish to build in from the outset regular reviews e.g. on a six monthly basis and commit to revert back to old terms and conditions or increase pay if you financial position allows.
7. Don’t make promises that you cannot keep during the process. Many employers are presenting changes to salaries and hours as an alternative to avoid redundancies but if we have learnt anything from the current economic situation its that no one can predict what is round the corner for their business. Don’t promise that there will not be any redundancies, simply say that you hope that this will circumvent the need for them.

Joanna Chatterton is an employment/HR lawyer and partner at Fox Williams LLP. Joanna can be contacted on 020 7614 2617 or jkchatterton@foxwilliams.com.