Making changes to your organisational structure can raise a number of employment and HR issues. If the restructure involves a reduction in the workforce, the employer must ensure they are following the correct legal procedures and meeting employees’ rights through the process.
Restructuring a business can be a challenging and unsettling experience for all those involved. As such, employers must endeavour to handle this process fairly and, with tensions often running high amongst those staff affected by the restructuring, ensure that they do not fall foul of the law when making any changes.
In this guide for employers, we explain the employment law and HR implications of restructuring processes, examining the different legal and strategic issues involved for employers: from an employee’s rights when reorganising a business to making redundancies and redeployment.
Importantly, as no two restructures will ever be exactly the same, any firm contemplating making structural changes to their business should always seek advice from an employment law specialist, specifically tailored to the needs of the organisation, to manage legal risk while minimising workforce disruption and impact on morale.
Employee restructuring rights
In HR terms, restructuring can involve splitting an organisation into separate parts, the merger of two or more organisations, or the transfer of some or all of an organisation’s activities to another. It could also involve a redistribution of work among the same number of employees, proposals to redeploy some or all employees, or to otherwise vary employee contracts and, where activities are entirely eliminated, staff redundancies.
The nature and extent of an employee’s rights when restructuring will primarily hinge on whether or not this will result in redundancies or transferring a part of the firm. If so, there are various key legal requirements around aspects such as consultations, seeking to avoid job losses and suitable alternative employment, having fair redundancy selection criteria, and ensuring continuity of employment when a business changes hands. However, even where a redundancy situation or transfer of undertaking will not form part of the restructuring process, there will still usually be changes to an employee’s working conditions, giving rise to various employee rights around variations of contract.
As such, while restructuring a business can often bring significant benefits to both an organisation and its’ workforce, it can also bring with it significant risks, not least around the possibility of breaching an employee’s rights within this process. If structural and contractual changes are not managed well, where employees do not support the changes or they have not had adequate opportunity to inform decisions, the resulting risks can include:
- damaged workforce morale and negative working relationships
- claims for breach of contract or constructive and unfair dismissal
- the loss of valuable members of staff, where they feel forced to resign
- reduced levels of employee engagement, performance and productivity
- increased levels of work-related stress and sickness absence
- reputational damage to an organisation and/or the employer-brand
- strikes or other industrial action, if there is a trade union.
Can employers change employee contact terms?
Even where redundancies or a transfer of undertaking are not contemplated, the employee will still have certain rights around any changes to their working conditions as a result of a restructuring. This is because the employment contract between the employer and employee, setting out the terms and conditions under which the employee is required to work, is a legally binding agreement. This means that any variation to these contractual terms and conditions, where business restructuring can often equate to changes in salary, working hours or other working arrangements, must usually be agreed by both parties.
The only exception to this rule is if the employment contract contains a flexibility clause, allowing the employer to vary specific aspects of an employee’s contractual terms. For example, under a mobility clause, the employee can be required to relocate, provided the request to do so is reasonable. This could be due to the closure of an office or workplace following a restructuring, or a change in the work carried out at a particular location. However, in assessing what is reasonable, regard should be had to the commuting distance involved for the employee and the amount of notice given before the change takes effect.
Wherever possible, any variation to an employee’s terms and conditions should be achieved by mutual agreement, even if the proposed change is permitted under a mobility clause or via any other flexibility provision. In this way, discussions can be had with those employees affected by the changes around the reasons for the restructuring, providing the employer with the chance to alleviate any concerns. This will also give employees the opportunity to ask questions, suggest alternative solutions and feel part of the restructuring process.
In cases where changes to terms and conditions are covered by an agreement with a recognised trade union, known as a collective agreement, the employer must by law consult with that union. The union representatives can then seek to negotiate and agree certain changes on behalf of its’ members. Otherwise, the employer will need to decide whether to set up individual meetings with each employee with a view to seeking their agreement or, alternatively, try to collectively consult with affected staff. This will typically depend on the number of staff affected and whether the business has any other established ways of consulting employees, such as an established employee forum or staff association, or a joint consultative committee including both management and employee representatives.
‘Fire and rehire’ when restructuring
If contactual changes can be agreed with employees, the employer will need to write to each affected employee within one month of the changes taking effect, setting out the new terms and conditions. If mutual agreement cannot be reached, the employer can either:
- give notice to the employee that they intend to make changes to their employment contract with effect from a certain date, or
- give notice to terminate the employee’s existing contract of employment and offer to rehire the employee on the new terms and conditions.
If an employer imposes a contract change before obtaining either individual or collective agreement, this will be classed as a breach of contract. Unless the employee affirms the changes by carrying on working without protest, they may have a claim in damages. If the employee feels forced to resign, they may also have a claim for constructive dismissal.
If the employer decides instead to fire and rehire any affected staff, they must do so with proper notice, following a full and fair dismissal procedure. This means that the employer must provide each employee with the right to appeal, before offering to re-engage the employee on the new revised terms. The employer must also have a fair reason to dismiss.
If the reason for the dismissal is redundancy, the employer must follow a fair redundancy process and, where appropriate, make redundancy payments, even though they propose to rehire any affected employee. If it is not a redundancy situation, the employer will need to show that they had ‘some other substantial reason’ (SOSR) to dismiss if this is challenged at an employment tribunal. For example, it might be considered SOSR if the business is in severe financial distress, the employer has made exhaustive attempts to reach a mutual agreement on contract changes, and there was no other option but to dismiss and rehire.
For those employees who accept the offer to be rehired under new contractual terms and conditions, there will be no breach of contract as a result of the employer having taken this action. The employee’s continuity of employment will also be preserved. However, if the employee rejects the employer’s offer, the termination will be regarded as a dismissal. This means that an eligible employee will be able to claim unfair dismissal in circumstances where they believe that the dismissal decision was not taken in a legally compliant way.
Before deciding to take either one of these steps, the employer should first engage in a proper consultation process to see if agreement can be reached. In the context of firing and re-hiring, if the employer is proposing to dismiss and offer re-engagement on new terms to 20 or more employees, by law they must collectively consult with trade union or employee representatives on the proposed dismissals. The employer should also thoroughly explore all other available options, where the imposition of new terms, or firing and re-hiring, both carry significant legal risks. These are essentially options of last resort. Even where staff continue to work for the organisation, the employer’s actions can seriously damage working relations, with a knock-on effect on morale, motivation and employee engagement.
Redeployment & restructuring
During the redundancy process, one of the procedural requirements on the employer is to explore all suitable alternatives to making an employee redundant. This could include options to redeploy the worker into a different role or a different part of the organisation. The new job does not necessarily need to be similar to the original role, and can involve different duties, pay and/or place of work. It can even be a different level of seniority.
Redeployment, however, is a complex area of the redundancy process, where employers must approach this with care to ensure that they follow a fair and lawful procedure. Equally, the overall running of a redundancy process can be a complex legal matter for which specialist advice must be sought based on the unique set of circumstances involved.
Restructuring & TUPE
In cases where a restructuring involves a transfer of undertaking, for example, where two organisations have merged to form a new one, or some or all of an organisation’s activities have been transferred to another organisation, regard must be had to employee rights under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) 2006.
Under the TUPE Regulations, employees have the right to transfer to a new employer on their existing terms and conditions of employment and with most of their existing employment rights intact. There are therefore important additional considerations if an employer is thinking about proposing changes to employment contracts post-transfer.
In addition to protection from dismissal or redundancy, both before and after a transfer, where the sole or principal reason is the transfer itself, employees are afforded protection against having their terms and conditions changed in connection with the transfer. The only exceptions are if the changes improve an employee’s terms and conditions, or the new employer can evidence an economic, technical or organisational (ETO) reason involving changes in the workforce, for example, where the organisation needs restructuring. By law, the employer can then seek to agree with an employee to makes changes to their contract.
The rationale behind the ETO-rule under the TUPE Regulations is to strike a balance between the protection of employee rights when a business changes hands and the need for an incoming employer to implement measures to meet the operational needs of their new business. As such, variations can be made to an employee’s contract following a TUPE transfer, and an employee can even be fairly dismissed, but only where there is a legitimate and sound business reason to do so and any reason is unconnected to the transfer. There are also strict statutory rules around consultation when it comes to TUPE, attracting potentially significant financial penalties for any failure to comply with these.
Restructuring & redundancy
The terms restructure and redundancy are often used interchangeably. This is because, even though some business restructures will ensure the continued employment of all members of staff, provided mutual agreement can be reached in relation to any contractual changes, restructuring a business can often mean that some members of staff will lose their jobs. Redundancy in a restructuring context is viable, provided the restructure creates a genuine redundancy situation and the employer follows a fair redundancy process.
By law, if you make an employee redundant it must be because either:
- you have ceased or intend to cease running the business in which they were employed; or
- you no longer need as many employees to carry out work of a particular kind.
If, as per the second point above, your business no longer needs as many employees to carry out work of a particular kind, then it is likely that you will need to make some employees redundant.
A redundancy situation could also arise where the employer is proposing to offer employees a new contract, ie, a fire and re-hire scenario. For example, if the employer is proposing contract changes because the number or nature of the roles needed to do certain work have altered, or the proposed changes will significantly alter the roles of affected employees, this could give rise to redundancies. In either case, the employer must again follow a fair redundancy process and pay the correct redundancy pay to any eligible employes.
As a result of a redundancy process, or simultaneously with it, employers can also restructure their organisation in order to make most efficient use of the remaining employees. A potentially redundant employee may first be offered ‘suitable alternative employment’ within the new structure.
As part of a fair redundancy process, employees and any union or employee representatives should be consulted, including looking at ways in which dismissals can be avoided. The law also states that when proposing to make redundant 20 or more employees at one establishment within 90 days, the employer must consult any recognised trade union and elected employee representatives in good time before the first dismissal takes place. In addition to the risk around unfair dismissal in the context of redundancy, a failure to collectively consult could also result in a compensation claim for each affected employee.
Redundancy consultation & communication
There are laws governing consultation with employees and their representatives during a redundancy process. The requirements are:
- if you are making between 20 and 99 employees redundant then the consultation period must start at least 30 days before any dismissals take effect; and
- if you are making 100 or more employees redundant the consultation must start at least 45 days before any dismissals take effect.
Employers are legally obliged to consider alternatives to redundancy, where employees have worked for them for more than two years. At the outset it is helpful to ask employees and their representatives for their ideas as to how to minimise redundancies. You could consider lay-off or short-time working, or ask for volunteers to take redundancy. If you do ask for volunteers you should make clear that you may turn down a request for voluntary redundancy. You might wish to do so because the employee has long-service so will be relatively expensive to make redundant, or because you wish to retain the employee in the workforce.
Once you have carried out the redundancy consultation and decided who you will make redundant, you are still legally obliged to look out for suitable alternative employment for redundant employees right up until the time their redundancy takes effect.
In addition, you may wish to offer suitable alternative employment to an employee whose job has disappeared, but who you wish to retain in the new structure.
Suitable alternative employment
Suitable alternative employment is the term for an offer of alternative work within the organisation.
In order to decide if a job is suitable alternative employment, a number of factors are relevant:
- the location of the new job – is it in the same office / workplace or another site and if it is at another site, will the employee have to travel further or is the journey more difficult?
- how similar is the new job to the employee’s current job?
- is their current skillset a match for the proposed role?
- does the employee need retraining in order to do the job?
- is the new job at the same grade or lower?
- is the pay the same? – even though the employee is less likely to accept it, you should still offer the role to protect yourself against a claim in the future
In law, the test for whether an alternative role is suitable is a subjective one not objective, i.e. the employee can reject the offer and take the redundancy payment if the new role is not suitable for them, taking into account their personal circumstances.
There are different approaches you can take. You can choose to give employees information about alternative roles within your organisation, and leave it up to them to apply for a role, or you can approach them directly. You can conduct an interview if you wish. You must give the employee a fair chance at interview, but if you do not think that they are suitable then you should inform them of that and proceed with their redundancy.
Where you want to offer your employee a suitable alternative role, you must make the offer to the employee before their current contract ends. It is best practice, and strongly advised, to make the offer in writing, and to give them enough time to consider it. The offer should include enough information about the role in order that the employee can make an informed decision. The new job must then start within four weeks of the previous job ending.
The employee is entitled to a trial period of four weeks in the new job. If necessary, you can agree an extension to the trial period with the employee. This could be because the employee needs more training. If so, you should write to the employee explaining the reason for the extension to the trial period and its new end date.
Where an employee is offered suitable employment they can reject the offer before the end of their current role, or during or at the end of the trial period. If your offer is rejected, the employee must have a good reason for doing so. However, the reason can be valid if it relates to their own personal circumstances. For example, a longer or more expensive commute to work in a new location, or health or family reasons, can be good reasons for rejecting an offer of suitable alternative employment.
If the employee has worked for you for more than two years, they will then be entitled to a redundancy payment.
Sometimes, employers do not accept their employee’s reason for rejecting an offer of suitable alternative employment. The employer may consider that the alternative role was well-suited to the employee and that the employee simply wants their redundancy payment instead.
If this situation arises, it is wise to try to prevent it from escalating into a conflict. If you have not done so already during the consultation period, you should talk to your employee to find out more about their personal circumstances and motivation. You may find that you have preconceived ideas which are not accurate.
At all times, employers should consider the longer-term risks to morale and productivity within their organisation if they force employees to accept offers of alternative work.
Managing legal risk
During a restructuring process there are legal risks as some employees may be dismissed and others will be unhappy with their alternative roles.
As stated above, you should make sure that you engage fully with your employee. If you can still not come to an agreement it is possible that the employee will raise a grievance and / or apply to ACAS for early conciliation and make an application to the Employment Tribunal.
In the Tribunal it would be for the employer to prove that:
- the offer of alternative employment was suitable; and
- that the employee was unreasonable in refusing the alternative work.
In relation to number 2, the employee will be judged according to their particular circumstances.
There are some additional considerations.
First, you must remember that an employee on maternity leave who is at risk of redundancy must be offered a suitable alternative role, if there is one available, in preference to all other employees at risk.
Second, in drafting employment contracts, and when commencing a restructuring / redundancy process you should consider whether the contracts have ‘mobility clauses’. A mobility clause is one which states that the employee must be prepared to work anywhere the employer tells them to.
If there is a mobility clause in an employee’s contract and you offer them suitable alternative employment at another location, then they will have to take the job. If they refuse, they will forfeit their redundancy pay. Even so, employers who have included mobility clauses should be wary of requiring an employee to relocate a great distance and / or in a short period of time as an Employment Tribunal may consider this to be unreasonable.
If there is not a mobility clause then the employee can turn down the suitable alternative job if it would take them longer or cost them more to travel there. However, employers should note that if the costs and time are the same, then this factor on its own will not allow the employee to refuse the job.
Third, employers must be aware that an employment tribunal may make a finding of unfair dismissal where the employee is made redundant, but there was a suitable alternative role that they could have undertaken. The timing of the dismissal is also important. If suitable alternative work comes up after an employee has been dismissed then that will not be relevant, as the employer did not know about it at the time of, or before, the employee’s contract end date.
However, as stated earlier, if an employer become aware of suitable alternative work in their organisation between giving notice to the employee and the end of the contract, then the Employment Tribunal may make a finding that it was not reasonable for the employer to continue to dismiss the employee and the dismissal was unfair.
DavidsonMorris’ employment lawyers can help with all aspects of workforce management, including adapting to the challenges of the COVID pandemic on restructuring, changing employment terms and employee engagement. Working closely with our specialists in HR, we deliver comprehensive advice on the options open to you as an employer and provide practical support through any process to vary contractual terms or to draft new employment documentation adjusted to post-pandemic conditions and requirements. For help and advice with a specific issue, speak to our experts.
Job Restructuring Rights FAQs
Can employer change a job role?
An employer can change an employee’s job role, but usually only with their consent. Employees can find that their job role changes following a redundancy process. As part of a redundancy process an employer is legally obliged to look for suitable alternative work for the at risk employees within their organisation. If an employer make an offer of an alternative job, this may include changes to the role. Depending on the nature and scope of the changes, the employee may accept the new role after a trial period, or reject the role and take the redundancy payment. If the employee rejects the new job, they must have a good reason for doing so.
Can you demote someone due to restructure?
If the restructure is taking place at the same time as a redundancy process, the individual should be offered a role as an alternative to redundancy. The individual has the right to a four week trial period in the new job, following which they can choose whether or not to take the job.
What does a restructure at work mean?
A restructure at work can mean different things, in some cases may result in redundancies and job losses and that the remaining jobs will be reorganised into a new structure. An employee may find that their job no longer exists, but that, to avoid making them redundant, the employer will offer them suitable alternative employment, i.e. a job in the new structure. If this happens, the employee is entitled to a four week trial period in the new job, after which they can refuse the new position if they have a good reason for doing so.
Last updated: 4 December 2022