How do I change my employees' employment contracts legally?

Update: On 3rd March 2021, Rishi Sunak announced in his Budget that furlough leave would now be extended until the end of September 2021.

As the end of the Coronavirus Job Retention Scheme approaches, many employers will be considering new measures to protect the future of their business. These could include reducing employee benefits, having employees work part-time, or making homeworking arrangements permanent. As an employer, if you are looking to adjust working arrangements with employees, you will need to understand how to properly implement these changes in your employees’ contracts.  Our Employment Law team discusses this today, reviewing the different clauses that may exist in your employment contracts to allow this change and how consent plays a role in making any amendments.

Flexibility Clause

The employee’s contract may contain a “variation clause” or “flexibility clause” that allows you to alter the terms of employment. In order for this clause to be effective it must be specific about which term can be changed. For example, a clause may state that you can require the employee to work at a different location. You should also examine the clause to see if it requires a notice period or if you must follow a specific process.

Even if the employee’s clause allows a change to the terms of employment, it is still best practice to consult with employees before implementing the change. This helps ensure the change works for the business and the affected employees.

Changing an employment contract with employee agreement

Without a variation clause you will need to get the affected employees’ agreement to vary the terms of their contracts. You should consult with the employees directly or with union representatives, where applicable. You should explain to the employees why the changes need to made and what they are expected to accomplish for the business.

Employees may have some concerns about the proposed changes. During the consultation, you should invite employees to express their concerns and offer any alternative ideas. You should listen to these concerns carefully and do everything reasonably possible to resolve employee anxiety. If employees are given some input into the process, they may be more willing to accept the changes.

You may also consider offering some incentives to motivate employees to accept the proposed changes. Possible incentives include:

• extra leave or time off
• help with travel costs for a period
• financial incentives such as a bonus 

Once the new terms are agreed, it is good practice to put them in writing. If the change relates to anything that must legally be in the employee’s written statement of particulars, you must notify the employee of the change in writing and within one month of when the change takes effect.

Changing an employment contract without employee agreement

If you try and force the change without a flexibility clause or first getting employee agreement you may be in breach of contract. This could lead to the employees working under protest, making tribunal claims for unlawful deduction of wages or resigning and claiming constructive unfair dismissal.

Agreement is always your best option so you should try and keep talking to your employees until you reach some form of agreement. However, some employees may simply refuse to accept a change. If this is the case, you may need to consider dismissing and then rehiring the employee on the new terms.  In that way they won’t have a continuing contractual right that they can enforce by way of an unlawful deduction from wages claim or by claiming breach of contract.

This strategy should be a last resort as it carries some risks. The employee may not want to be re-engaged, which may mean that they opt to leave and you lose talent and skill from the business and it could affect the morale of the other employees. If the employee was employed for at least two years, they may argue they were dismissed unfairly and file an Employment Tribunal claim.

If you do choose to go down this route, to minimise the risk of a tribunal claim, you must follow a fair dismissal procedure. You need to ensure that you go through meaningful consultation with the employee and that you balance the needs of the business with the impact on the individual.  The employee should be given the appropriate notice as stated in their contract and they also have the right to appeal their dismissal.

If you plan to use this strategy on a widescale basis and to dismiss and re-engage 20 or more employees, you will need to go through collective consultation which will involve consultation over at least a 30 period (45 days if there are 90 or more employees affected) and which will need to be with appropriate representatives who may be a recognised trade union or employee representatives elected for the purpose.

If the new contract takes effect immediately after the old contract ends your employee keeps continuous service. Changes introduced by the new contract should not take effect until after the old contract ends.    

If you are an employer considering making changes in your business and wish to discuss your options, you can contact us today on 023 8071 7717 or email employment@warnergoodman.co.uk.

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ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.