Changing an Employee’s Terms and Conditions of Employment – an alternative to redundancy

22nd January 2021

Changing an Employee’s Terms and Conditions of Employment – an alternative to redundancy

Now that the UK is back in lockdown, many employers continue to face restrictions on how they operate their businesses, some are unable to operate at all, while others have to cope with the knock-on effect of a pandemic which has created significant uncertainty.

Employers will be facing a number of issues that have affected their business, and indeed, their employees. Some employers have already had to make the difficult decision to close their business, some have continued in part or all of their business and many employers have sadly had to let staff go by making them redundant or exercising contractual rights to terminate their contracts with them.

Indeed, it is clear that some employers will need to consider restructuring their business in order to survive and also consider how they deal with a potential ongoing downturn in work whilst still retaining their workforce. In some cases, redundancy may, unfortunately, be the only viable option.

The fact of the matter is that redundancies are continuing to happen across all sectors as companies feel the strain of the economic hit that Covid-19 has had on their business. The biggest challenge that employers will face in order to survive is how they can maintain a strong workforce once the government’s Coronavirus Job Retention Scheme ends.

Of course, redundancy is rarely a route which employers wish to take, and any fair redundancy process necessarily involves exploring alternatives.

An alternative to redundancy

One alternative to redundancy that can yield a lot of benefits for a business is considering changing existing employees’ terms and conditions of employment. In doing so this may increase the financial stability of the business whilst it changes and adapts to the current climate and will also ensure that there is a strong workforce behind the business.

Changes that could be made may include:

  1. Reducing pay (with or without a commensurate reduction in hours) on a temporary or a permanent basis. Staff are one of the biggest overheads for businesses so naturally staff wages are one of the first places to look at cuts.
  2. Introducing flexible working hours and/or shift patterns – allowing staff to work on a more flexible basis will avoid the need to commute in busy periods and also allows an employer to have a rotating workforce which will minimise staff working altogether at one time.
  3. Introducing changes to employees’ job roles – it may be the case that some employees can take on elements of other areas the business is concerned with or remove such responsibilities where it’s found these are no longer needed as the business changes.
  4. Inserting lay off or short-time working clauses into contracts – it is not certain what the future holds so employers may find comfort in inserting lay off or short-time working clauses into employees’ contracts to give them greater flexibility should the UK face further lockdown periods.

What to consider when changing existing employees’ terms and conditions

Where an employer is considering changing existing employees’ terms and conditions they must bear in mind that they could find themselves in a redundancy situation if the nature and extent of the proposals go to the heart of the job being undertaken by the employees. This will, of course, be fact sensitive and will very much depend on whether there is a diminished requirement for work which is the driving force behind making the proposed changes and ultimately on the willingness of employees to agree to the changes.

In order to proceed with proposed changes to employees’ terms and conditions, an employer should consider the following:

  • Check whether the existing terms of the contract are broad enough to accept the proposed changes without any amendments.
  • Where the contract isn’t wide enough, check whether there is an express contractual right to vary the contract (although note that such a contractual right won’t automatically entitle an employer to make changes – changes must be reasonable and we’d recommend taking advice in all cases).

Where it is apparent that there is no express contractual right to amend the employer has 3 options:

  1. Obtain express agreement to the new terms (this can be done on an individual basis or through a binding collective agreement where identical changes are being made in respect of 20 or more employees).
  2. Unilaterally impose the changes (although it is advised to not take this approach – see below).
  3. Where agreement cannot be reached to proposed changes, terminate the existing contract and offer re-employment with a new contract setting out the new terms.

Associated Risks

It is important to note, that whilst these 3 options are available to employers, they are not risk-free. Unilaterally imposing a change, for example, may constitute a breach of an employee’s contract and entitle them to resign and bring a claim for unfair constructive dismissal (where the breach is fundamental and goes to the root of the contract). Furthermore, occasionally, where the change made to the contract is so substantial and the new terms so radically different than the original contract is effectively treated as terminated, then an employee may be deemed to have been actually (unfairly) dismissed by the employer.

When considering changes to employees’ terms and conditions of employment, it’s imperative that employees are consulted with before any final decisions are made. The ultimate aim is to try to reach agreement wherever possible. Where an employer anticipates that majority agreement may not be reached (or at all) and intends to implement a change by dismissing any employees who do not agree to it and offer them re-engagement on the new terms, there is a risk of unfair dismissal claims. Although an employer may have a legitimate business need for the change, and therefore a potentially fair reason for dismissing any employees that do not agree to it (“some other substantial reason” or, as it’s otherwise known, SOSR), it must demonstrate that it has acted reasonably in treating that as a sufficient reason for dismissing the employee. In practice, this means that employers must follow a fair procedure, which includes consulting with the employee and the proposed change, i.e. before any final decisions have been made, and the reasons for it, and considering/responding appropriately to any concerns/suggestions the employee may have.

Where 20 or more employees are likely to be affected then, in addition to consulting with employees on an individual basis, the duty to consult collectively under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULR(C)A) is triggered. It is appreciated that employers will not always know how many employees will agree to the change of terms or whether in fact, it will need to dismiss and re-engage some employees.

However, since the overriding obligation under TULR(C)A is that any collective consultation process should take place “in good time”, and the minimum consultation periods are very prescriptive, in most cases it will be advisable to commence collective consultation from the outset where changes will affect 20 or more employees.

Employers have various obligations during a collective consultation process, which in short, include:

  • consulting the relevant representatives of the affected employees (i.e. representatives of a recognised trade union or where there is no union an elected workplace representative);
  • providing prescribed information (i.e. the reasons behind the dismissals & number of employees affected);
  • attempting to reach an agreement with representatives;
  • ensuring the process is conducted in a meaningful and effective manner; and
  • notifying the Secretary of State.

Failure to comply with the collective consultation obligations may result in the employer being ordered to pay a protective award of up to 90 days’ actual pay to each affected employee, and failure to notify the Secretary of State is a criminal offence, so it is important that these obligations are taken seriously. We are assisting employers with workforce issues they may face as the effects of the covid pandemic continue by providing guidance on possible alternatives to redundancy and how best to handle this process.

If you have any queries on changing existing employees’ terms and conditions and would like to discuss this further or obtain advice generally about alternatives to redundancy then please do contact Marie Allen or Elizabeth Clazie for advice at [email protected].

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