All change please - top tips on changing terms and conditions of employment

January 19, 2015

Changing terms and conditions of employment of your employees is a sensitive matter at the best of times.  Businesses often place it in the “too difficult” pile.  They want to make changes but fear the consequences of doing so, particularly if employees are their main asset.  However, sometimes change is necessary. 

If you need to make changes and you have no contractual right to do so then you have three main options open to you:

  1. Obtain the employee’s express consent to the change.

  2. Impose the change and seek to rely on the employee’s actions to establish their implied consent to the change.

  3. Terminate the employee’s current contract but offer continued employment on a contract which includes the change.

Which is the best option will vary but the tips below are relevant to most situations.

Tip 1:  Assess the possible consequences

  • Damage to employee relations – Will the changes may have a demotivating effect on staff, lower morale or be a significant distraction from running the day to day business?  Are any key employees likely to leave?  Will your business be left vulnerable to poaching by competitors?

  • Legal risks if you do not obtain the employee’s express consent and have to resort to options 2 or 3.  The most significant risk is constructive unfair dismissal claims if you impose the changes and ordinary unfair dismissal claims if you terminate an employee’s current contract.  However, if you impose the changes then employees may remain in post but claim that they are working “under protest” and bring claims, such as unlawful deduction from wages claims, whilst still in employment. 

  • Hidden costs - If the changes result in employees resigning then you risk having to incur recruitment costs in hiring their replacements, together with the usual indirect costs related to losing experienced staff, and recruiting, training and embedding new staff.

Tip 2:  Choose your moment

  • Consider the most favourable time to obtain consent - Changes are generally best implemented at salary review time or when other beneficial financial arrangements (e.g. discretionary bonuses or awards of options and shares) are being implemented.  This is because employers can make salary rises conditional on employees agreeing to changes.  This approach also has the advantage of removing scope for argument over whether the employee has received consideration for the change, and therefore whether the change is binding.

  • Consider the state of the job market for the employees in question.  If it is not good then they may be more likely to accept the changes. In 2008/2009 some companies implemented pay cuts with little or no consequences.  In contrast, if the market is good, employees may be tempted to look for roles elsewhere. 

Tip 3:  Give as much notice as possible

  • Change is invariably better received by employees when they have plenty of advance notice of it.  Ample notice can also help you in persuading a Tribunal that you followed a fair process. 

Tip 4:  Get your communications right

  • Good, timely communication and consultation is often the single most important factor in being able to implement changes successfully.  Planning it carefully usually pays off. 
  • Explain clearly the reasons for the proposed changes - is it is to bring terms into line with the rest of the market, to ensure the business remains viable and able to pay competitive salaries and bonuses, to meet good corporate governance standards or some other reason?
  • Be clear about who is affected.  Often changes are more palatable if they affect everyone, including management. 
  • Be receptive to feedback wherever possible and equally importantly, be seen to be receptive to feedback.

Tip 5:  Beware of the less obvious pitfalls

  • Falling foul of the TUPE regulations - Changes you make to terms and conditions of an employee who TUPE-transferred to your business since 31 January 2014 are void if the sole or principal reason for the variation is the TUPE transfer – unless that reason is an “economic, technical or organisational” reason entailing changes in the workforce and you and the employee agree the change, or the contract permits such a change.  More onerous restrictions apply in respect of earlier transfers.
  • Inadvertently falling into the collective redundancy regime and triggering the consultation obligations it entails if you have to resort to dismissing employees and offering to re-employ them on new contracts incorporating the changes.  This is a risk if you propose to make 20 or more such dismissals because, odd though it may sound, such dismissals will be classed as “redundancies”.  Failure to comply with the relevant consultation obligations would leave you exposed to a Tribunal making protective awards of up to 13 weeks’ actual pay per employee.
  • Employees arguing that they are not bound by the notice provisions or post-termination restrictions in their employment contracts.  As an employer you cannot seek to enforce post-termination restrictions in a contract which you have breached (as will be the case if employees successfully argue that they have been constructively dismissed).  Being unable to enforce restrictions against former employees may result in significant damage to your business.

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