I Wonder How I Can Change Employee Contracts While Minimising Risk

As businesses evolve and laws change, employers may need to update the terms and conditions of their employees' contracts to reflect new working patterns, roles, pay or business priorities. However, changing terms requires a careful and consultative approach. This article will explain the key points employers must understand before making any contractual changes.

How can an employer make changes to contract terms?

A contract can only be varied in accordance with its own terms, or by agreement of all parties. In some cases, contracts may contain a ‘variation clause’ which allows for changes to be made without explicitly obtaining the employee's consent. However, if a contract does not include a variation clause, then there are a number of alternative ways to change terms:

• Seek the employees' express agreement: Preferably, you would obtain the employees' agreement in writing that they accept the change being made. This is the most accepting and risk-free way to change terms.
   
• Unilaterally impose the change: The employer may force the change on the employee. Employers may be able to rely on employees’ conduct to establish the agreement to the change; however, this method carries serious risks.
   
• Fire and Re-hire: This refers to firing an employee and re-hiring them on new terms. However, employers must follow the Statutory Code of Practice on Dismissal and Re-Engagement, and failure to comply with the Code may lead to higher tribunal awards for an employee claiming unfair dismissal.

What are the risks of changing a contract without consent?

If an employee refuses to agree to a proposed contractual change, some businesses may choose to impose the change unilaterally, pursue redundancy, or use the ‘fire and rehire’ method. However, these actions carry significant risks, including:

• Breach of Contract: Changing terms without consent can give rise to a breach of contract claim.
   
• Constructive Dismissal: Employees may claim they were forced to resign due to the changes imposed upon them.
   
• Unfair Dismissal: The ‘fire and rehire’ approach can result in unfair dismissal claims if the employer lacks a fair reason or fails to follow proper procedures when dismissing the employee.
   
• Damaged Employee Relations: Unilateral changes can harm trust, morale and retention, and employees can lose trust in the business.

If employers unilaterally impose the change, it is crucial to demonstrate that all reasonable alternatives have been explored and that a full, fair consultation process has been followed. An example of a fair consultation process is set out below.

What is the process for implementing changes?

It is good for employers to consult with employees on difficult proposed changes and how they will be implemented. The process can be broken down into eight steps:

Step 1: Determine whether the situation requires individual or collective consultation, depending on how many employees it will affect and whether (if necessary) collective redundancy obligations may be triggered if 20 or more employees refuse the change.

Step 2: Present the proposed contractual changes to employees by explaining the reasons, scope, and timing, and provide draft revised contracts or written variations of their terms.

Step 3: Begin consultation meetings by inviting feedback, noting objections, answering questions, and ensuring every affected employee has a fair opportunity to comment.

Step 4: Review all feedback received and assess whether the proposed changes can be modified, softened, or re-framed to address employees’ concerns while still meeting business objectives.

Step 5: Hold a further consultation meeting to address previous feedback, consider any written representations, and explain that dismissal and re-engagement may become necessary, while seeking specialist advice before raising dismissal explicitly.

Step 6: Re-examine the proposals thoroughly by evaluating reasonable alternatives, the impact on different employee groups, and whether the business objectives could be met through less disruptive means.

Step 7: Write to employees confirming the final proposed changes and setting a clear deadline for them to provide a written agreement or confirm their refusal.

Step 8: If agreement is not reached, hold individual meetings to discuss each employee’s refusal, explain the potential termination and re-engagement process, allow them to be accompanied, and give them the chance to make representations.

If employees agree to the change, the employer must give them written notice of the change of terms within one month of the proposed change.

Summary

In conclusion, employers must follow a formal consultation process wherever possible, before making any changes to the terms and conditions of their contracts unless consent is explicitly given. Unilaterally altering terms or resorting to practices like firing and rehiring employees to enforce changes can expose the employer to significant legal risks, including claims of constructive or unfair dismissal.

To avoid these risks, employers should seek legal advice initially, engage in open communication with employees, seek mutual agreement, and, when necessary, offer fair compensation for any alterations. Taking these steps helps ensure compliance with employment laws and promotes a respectful and transparent workplace, reducing the potential for disputes while strengthening employee relations.

Further Advice

If you have any queries on workplace burnout or any other employment-related matters, our Peace of Mind Team is here to provide expert guidance. Our Document Audit Team can also assist in drafting relevant workplace policies.

Contact our Employment Team by emailing employment@warnergoodman.co.uk or calling 023 8071 7717.

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