- 17 minute read
- Last updated: 29th December 2019
Changing an employee’s contract of employment is not something you can usually do without their consent. Further, even where the employment contract contains some form of flexibility or variation clause, you can only make use of this type of contractual provision where it is reasonable to do so and having provided the employee with sufficient notice.
Below we look at when a change of contract can be made and how this process should be handled, including any risks and common pitfalls involved, as well as the notice requirements necessary prior to any change taking place.
This article covers:
- When can an employer change a contract?
- Process for changing employment contract terms
- What counts as a clear “ETO” reason?
- Forcing contract terms
- Pitfalls of changing contract terms
- Is there a 90 days notice change of contract requirement?
As an employer, you can make a change or variation to an employment contract in the following circumstances:
- There is provision within the contract that allows for the change, often referred to as a flexibility or variation clause, or
- By mutual or collective agreement, ie; where the employee individually agrees to the change, or where an agreement is negotiated between you, as the employer, with a trade union or staff association.
Accordingly, in the absence of any contractual provision giving you the right to change a specific term, in most cases you must obtain the agreement of your employee(s), or the agreement of any trade union or other representative, if you want to vary an employment contract on a lawful basis.
Further, even in cases where the contract of employment incorporates a flexibility or variation clause allowing, for example, changes to be made to an employees shift pattern or their place of work, you will not have an unfettered right to implement these changes in respect of all affected staff.
In particular, these types of contractual provisions should only be used to make reasonable contractual changes having regard to the individual circumstances of each employee. You should also only make these changes on reasonable notice. As such, where an employee is asked to relocate to a different region under the terms of a mobility clause requiring them to work anywhere in the UK, they should still be given sufficient notice to facilitate such a significant move.
Prior to putting forward any proposed changes, you should always double-check the wording of any contractual provisions to see specifically what type of term you can vary, as well as whether you need to provide the employee with any minimum notice period and/or follow a certain procedure.
In circumstances where an employee refuses to agree to any reasonable proposal for change, in theory, it is open to you to terminate their contract and re-employ them on new terms and conditions. In other words, you can force the change on any dissenting employee(s).
You can even consider this course of action in the absence of any express contractual basis to do so, although there must be some legitimate and sound business reason for the change, for example, where there are specific operational or economic circumstances requiring you to reorganise or relocate.
In either case, however, this can be an extremely risky strategy that is highly likely to cause discord amongst your workforce, if not leaving you defending a claim for either breach of contract or unfair dismissal. As such, “dismissal and rehire” should only be used as a last resort, where all other options and alternative solutions have been completely exhausted.
There are various steps that you will need to take when looking to implement a change of contract. These are each dealt with in turn below.
Approaching employees with your proposal for change
When looking to make a change to an employee’s contract of employment you should not only approach the matter having regard to the economic and operational needs of your business, but at all times having regard to the individual needs of each employee affected by the change.
By handling the matter carefully and sensitively, you are much more likely to secure the necessary agreement needed to allow you to lawfully effect any necessary change. In particular, when approaching employees with your proposals for change, you should always follow these five basic steps:
- Consult or negotiate with employees and/or their representatives
- Fully explain your reasons behind making the change
- Invite employees to share their concerns and suggest alternative ideas
- Listen to employees concerns and consider all their ideas
- Attempt to resolve any concerns raised.
You may also want to talk with individuals on a one-to-one basis with a view to identifying the reasons why an employee is reluctant to accept any change, exploring different ways in which you may be able to address their individual concerns. Any one-to-one consultation with a dissenting employee will almost certainly bolster your defence to any subsequent unfair dismissal claim.
Providing a written statement of any contractual change
Having secured an agreement for a change of contract, you should provide a written statement of these changes to each affected employee. Although not all changes of contract need to be set out in writing, you must give written notification within one month of any changes that relate to the employee’s main terms and conditions, such as working hours or job location.
Further, any changes to collective agreements with a trade union or staff association must also be in writing.
When providing written notification, you should set out the precise nature of the change of contract and where to find further information about this, for example, in the staff handbook or on any HR intranet site. You should also set out when this change is to take effect, although ideally, an agreement should already have been reached as to the timing of any change.
Depending on the nature of the change and when, in operational terms, you need this change to come into force, this could be as much as a “90 days notice change of contract” or even a change with immediate effect.
Pushing ahead with your proposals without agreement
Where agreement cannot be reached, as explained above, you may terminate an employees’ existing contract and offer continued employment on new terms.
To lawfully dismiss an employee you will need to establish one of five potentially fair reasons as set out under the Employment Rights Act (ERA) 1996, namely conduct, capability, redundancy, breach of a statutory restriction or “some other substantial reason” of a kind that justifies the dismissal.
Dismissal for refusing to agree to new contractual terms typically falls within “some other substantial reason” under the ERA 1996, provided there is a sound and legitimate business reason for the change. You must also follow a fair procedure, including some form of consultation process and providing employees with the statutory minimum notice period prior to dismissal.
In circumstances where you are planning to dismiss and rehire 20 or more employees within 90 days or less, you may have to follow the collective consultation process used for redundancy dismissals.
In the event that you try to force through a change of contract you may find yourself facing a whole host of practical and legal issues in consequence, not least the possibility of defending a tribunal claim. Similarly, legal disputes can also arise as a result of any unreasonable enforcement of a flexibility clause.
If you seek to unilaterally change the terms and conditions under which an employee works, or unreasonably impose changes under a contractual provision such as a mobility clause, that individual may:
- Refuse to work under the new conditions
- Elect to work under the new terms, albeit only doing so under protest and treating the change as a breach of contract
- Resign and claim constructive dismissal, where the change is substantial
- Take a case to a tribunal for breach of contract, unfair dismissal, or even unlawful deduction of wages where the change affects their pay.
In circumstances where the employee disagrees with the new terms and conditions but does not say or do anything, arguably this could be construed as their agreement to the change of contract.
That said, pushing ahead with any proposed change in the hope an employee will bow to pressure and keep quiet about it, is likely to leave you exposed to very costly litigation, not to mention serious criticism from the tribunal. Further, the more employees you dismiss in this way, the greater your potential liability.
In relation to any claim for unfair or constructive dismissal, as with other dismissal claims, you must be able to show a fair reason for dismissal and that you acted reasonably in all the circumstances. As such, to defeat any claim before the tribunal, you must be able to prove that you had a good business case for the change and followed a proper consultation process.
One of the most common problems when dealing with a proposed change of contract is a lack of communication between the parties. In particular, the absence of any explanation, discussion or consultation on the part of the employer can lead to disagreement and disharmony, and in extreme cases, irreparable damage to the employment relationship.
Talking to your staff at the earliest possible opportunity, and prior to any final decisions being made, can help to facilitate a contractual change that meets the needs of both your business and your workforce.
The importance of consulting and communicating with employees and their representatives before making any decisions cannot be underestimated. You can use the consultation process to explain your business case, answer employee concerns and consider your options. In some instances, employees may even come up with new ideas and alternatives that you may be willing to try.
By following a consultation process you can also ascertain whether or not there are any objections and, if so, how these can be overcome. You may even want to ask for volunteers where, for example, the change of contract might suit some employees more than others, or offer financial or other incentives, such as relocation costs or time off work where, for example, you are asking employees to change location.
When consulting with employees, this should always be a two-way process where ideas are shared and worked on together. By having open, honest and meaningful discussions this should help you to build a better understanding of employee concerns and to consider all available alternative options.
Working together to agree contractual changes in this way can not only help to prevent potential disagreements and disputes from arising, it can also often lead to a more harmonious working relationship moving forward.
In circumstances where you cannot agree a change of contract, it is often best to keep talking for as long as possible, making every effort to reach a compromise. Forcing change without agreement can often lead to lower levels of engagement and performance in the workplace and/or employees working under protest, not to mention the risk of costly and time-consuming legal disputes.
The notice that you are required to give an employee to implement a change of contract will depend on the particular circumstances giving rise to the proposed change and the basis upon which the change is sought.
As set out above, this could either be through reliance on a contractual provision, through mutual or collective agreement, or even forcing through a reasonable change using a process of dismissal and rehire.
By way of example, where you are looking to rely on a mobility clause within an employee’s contract of employment to relocate that individual to a different office or site, the nature of the move and extent of any inconvenience caused will determine what is reasonable notice in the circumstances.
Needless to say, where you are asking an employee to work at a new location within reasonable driving distance of their home, you will not need to give them as much notice as when asking them to relocate to an entirely different region.
On the other hand, in circumstances where you are forcing through a change through dismissal and rehire, you will always need to provide the employee with the statutory minimum notice period for terminating their contract of employment. For an employee with continuous employment of 12 or more years, the notice period must not be less than 12 weeks.
Changing employees’ contractual terms requires careful handling and expertise. Measures will be needed to manage the organisation’s exposure to legal risks and impact on employee relations as a result of varying contract provisions, however minor or positive you consider the changes to be.
DavidsonMorris are experienced employment law and HR specialists. We have extensive expertise in employment documentation and contracts, including managing processes for change, giving full consideration to the required notice period for change and the importance of employee engagement and communication throughout the process.
If you have a question or need advice on any aspect of the contract variation, contact us.