Changing Contracts of Employment

There are many good reasons why an employer may want to change the contract after the employment has begun, for example to change the workplace or to introduce new shift systems or new methods of working. The problem for employers is that any significant change in contractual conditions is very likely to amount to a breach of contract which may entitle the employee to treat himself as constructively dismissed. The basic principle of law is that an employment contract is like any other once made, it can only be changed with the agreement of both parties. Plainly, if it were not possible to change working methods, businesses would quickly become uncompetitive. For that reason the law does allow contracts to be altered lawfully in a number of situations. The main ways of changing working methods which are potentially lawful are as follows:

When the change is covered by implied flexibility within the contract It is an implied condition of every contract of employment that the employee will work reasonably flexibly. How far that implied term goes is often very difficult to judge in particular cases, but generally speaking employees are required to adapt themselves to new methods of doing their existing job. For example, in Creswell -v- The Inland Revenue 1984 (IRLR) 190 employees complained that the introduction

of computers to input information was a breach of contract because it fundamentally changed the nature of their job. In fact it was held that changes such as these do not breach the contract and that there is a clear distinction between changes to the job itself (which may constitute a breach of contract), and changes which simply alter the way in which the job is done (which usually will not). Implied flexibility may also cover changes in the workplace. It is often possible to imply a condition into an employee’s contract that he or she will move to another place of work which is within reasonable daily travelling distance of their home.

Where the change is covered by an express flexibility term Many employers now draft contracts to include clauses which allow changes to be made in working hours, shift patterns, etc. These clauses are usually binding providing they are carefully drafted. But great care needs to be taken since Tribunals frequently take the view that if such clauses are not clear enough, then they cannot be enforced in many situations. There are broadly two types of flexibility clause: •

Broad flexibility clauses. This is common in older contracts and purports to give the power to change any part of the contract. The words used are frequently something like these: “Please note that the company reserves the right to change any of the terms of your contract if the needs of the business so require.” Broad flexibility clauses have been interpreted by the Courts as being ineffective if the change being introduced is a significant one.

Many employers now draft contracts to include clauses which allow changes to be made in working hours, shift patterns, etc. These clauses are usually binding providing they are carefully drafted. But great care needs to be taken since Tribunals frequently take the view that if such clauses are not clear enough, then they cannot be enforced in many situations.

Only minor changes may be lawfully introduced by activating a clause of this type; •



Specific flexibility clause. These clauses come in a number of forms, but all of them seek to make the scope of the contract so broad that there is no need to change it in the future, simply because any change which might be required is within the scope of the existing contract. A typical wording is as follows: “You may be required to work anywhere in the UK.” “You may be required to work additional hours from time to time.” “You may also be moved on to the night shift on either a temporary or permanent basis.” With a few caveats, this type of clause is enforceable. The only problem is that many of them are carelessly drafted, so leaving doubt as to whether the particular change which is being considered actually falls within the clause as drafted. If there is any doubt, the Courts will frequently come down on the side of an employee who objects to the change. For example, in Kenwood -v- Austin (EAT 1992 388/90) a contract said: “We reserve the right to re-arrange your hours to meet the requirements of the business.” but when the employer tried to activate this clause to require an employee to move on to a permanent night shift, the EAT found that the clause allowed relatively minor changes, but not a change so dramatic as the employer wanted. A clause which specifically said that a move to permanent night shift was required would probably have been effective.

Reaching an agreement with a recognised trade union pursuant to a collective agreement Where a workforce or part of a workforce is unionised any changes which are agreed with a recognised union will normally have an immediate effect in changing the contracts of individual employees providing there is a

pre-existing agreement between the employee and the employer that changes agreed with the union will bind them both. Such an agreement can be implied - if the employee has regularly accepted the benefit of union agreed changes, he may be deemed to have impliedly agreed to be bound by the terms of future agreements. The use of collective agreements is a very convenient way of achieving changes in contracts. It is usually fairly easy to imply an agreement between the employer and the employee that collectively agreed changes will affect individual contracts, and it is usually irrelevant whether the employee concerned is a member of the union or not. An employee will usually be bound by a collective agreement even if he made it clear in advance that he did not agree with the change which had been agreed, and resigned from the union.

By mutual agreement by the parties Before any attempt is made to impose changes, it is essential that agreement should be sought first. It is a fairly common practice to link a request to alter conditions with a one off payment or increase in salary. If agreement is obtained it should always be confirmed in writing, and the employee should be required to sign a document confirming his agreement. Simply issuing a new document which sets out the “agreement” is not regarded by the Courts as evidence that the employee has agreed.

Implied acceptance of change if the employee works on after a unilateral imposition of new terms If agreement cannot be reached, many employers will simply enforce a change by telling employees that if they wish to continue working they must do so under new terms and conditions. The employer hopes that if employees

Where a workforce or part of a workforce is unionised any changes which are agreed with a recognised union will normally have an immediate effect in changing the contracts of individual employees providing there is a preexisting agreement between the employee and the employer that changes agreed with the union will bind them both.

do not walk out, the contract will quickly change due to implied acceptance. Although it may be effective in many cases, there are significant problems with this approach: •

If the change is a significant one, the employee may walk out and claim that they have been constructively dismissed. This is an unavoidable risk if the employer wishes to change terms and conditions and cannot get agreement. In fact, providing there is a good reason for the change and fair procedures have been followed, an employer will probably win any Employment Tribunal application which is brought.

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If the change is one that does not have an immediate effect (e.g. the introduction of a new mobility clause or flexible rosters which will not be exercised immediately) working on may not be good evidence that the employee has accepted the change (Aparau -v- Iceland Frozen Foods 1996 IRLR 119). It is easier to imply acceptance where the change is one that does impact upon the employee at once (e.g. the introduction of new start and finish times).

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If the change results in a loss of wages an employee who objects may decide to remain in employment and advise his employer that he does not accept the change which has been imposed. He may then sue his employer for breach of contract while he remains in employment. His damages will be the difference between his old salary and the new salary following the imposed change. (Rigby -v- Ferrodo 1987 IRLR 516).

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The employee faced with the imposition of new terms may simply refuse to work to them. In this situation the employer has a choice of dismissing him or her or backing down. Because of the confusion caused by having some members of staff who refuse to work to a new system, it is often better to dismiss those employees who indicate that they will not sign

new contracts. Again, such a dismissal will usually be fair if there is a good business reason for the change and if fair procedures have been followed.

Dismissal and re-engagement under new terms Many of the problems associated with the unilateral imposition of change are removed, or very much reduced if the employer elects to dismiss those employees who will not agree to sign new contracts of employment and immediately offers them new employment on different terms. Although this appears to be a rather dramatic course, it should be remembered that in most cases very few employees will refuse to sign the new contract and the number of workers who will actually be dismissed will hopefully be small. However, specific legal advice should always be sought before an employer embarks upon a dismissal and re-engagement programme.

Changing terms and conditions and unfair dismissal No matter how it is implemented, significant changes in contract terms will involve the risk of unfair dismissal claims. Even where there are “flexibility” clauses within existing contracts, it may often be less than clear whether they will cover the change that is desired. A dismissal may come about in a number of ways: •

The employee may walk out in the face of a fundamental breach and claim that he is constructively dismissed.

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He may work on but refuse to recognise the new system. If the employer dismisses him as a result

No matter how it is implemented, significant changes in contract terms will involve the risk of unfair dismissal claims. Even where there are “flexibility” clauses within existing contracts, it may often be less than clear whether they will cover the change that is desired.

he may claim unfair dismissal. If his wages are withheld he may walk out and claim constructive dismissal. •

He may be dismissed by the employer for refusing to sign a new contract.

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He may walk out and claim constructive dismissal when told by an employer that he will be dismissed if he does not sign.

Dismissals, whether express or constructive, will usually be potentially fair under Section 98 of the ERA, either because the dismissal related to conduct (refusing to work to a new contract), redundancy or some other substantial reason. Whether such dismissals are actually fair will depend on whether the employer acted reasonably in dismissing for that reason. In practice, most claims involving dismissals of this type can be successfully defended and on the whole the approach of most Tribunals is sympathetic towards employers who introduce changes in terms and conditions, providing that fair procedures are followed.

Fairness Over a number of years the Tribunals have developed principles by which the fairness of an employer’s actions are judged. When considering whether or not a dismissal was fair, the Tribunal’s main considerations are these: •

The employer must be able to show that there is a good business reason for the change. The reason must be more than one of simple convenience, but it need not necessarily be a matter of survival for the business.

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In practice, the greater the disadvantage suffered by employees as a result of the change, the greater the level of business need the employer must show.

On the whole, Tribunals are suspicious of changes which consist simply of a cut in salary or earning potential. Such changes will often be fair only if the survival of the business is at stake. Tribunals tend to be more sympathetic towards changes which will increase efficiency and/or flexibility or which will tend to improve safety. •

Tribunals are bound to make an enquiry into and take account of the motives of the employer. Of course, this is closely allied to the point made above. Tribunals are more likely to accept that employers acted out of acceptable business motives if the change is a carefully considered one which will improve the efficiency of the business.

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An employer is expected to consult with each employee individually in order to explain the change and what it will mean for the employee concerned. Any proposals which are put forward by the employee must be considered. It is important to remember that employers must consider the change in the context of each single employee and their individual problems and circumstances. Where an employee has a good reason for finding the change unacceptable, the employer should always consider whether there would be a way of continuing to employ the individual concerned without forcing the change of working conditions upon them. The bigger the employer the more likely it is that Tribunals will expect an exception to be made if the circumstances warrant it. For example, in London Underground -v- Edwards 1995 (IRLR 355), the employer was unreasonable when it failed to make an exception in the case of a single mother who could not work to new flexible rosters. In some cases employers may be expected to seek out alternative employment if it is available, though it is most unlikely that the Tribunal would expect an employer to create a new job.

The employer must be able to show that there is a good business reason for the change. The reason must be more than one of simple convenience, but it need not necessarily be a matter of survival for the business.

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The employer must carefully consider what change in contract would achieve an acceptable business solution while causing the least disadvantage to its employees. Plainly, there is often more than one way to achieve a business solution and where possible the employer is expected to select the one which is the most favourable to its staff. Having reached a view on the best method of implementing change, hopefully following consultation with employees, an employer is then expected to formulate its plans into a formal offer and then give staff a reasonable amount of time to think about it. A rushed change will create a risk of unfair constructive dismissal even if everything else is “fair”.

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Dismissal following a refusal to agree to new terms is more likely to be fair if a high proportion of the employee’s colleagues agreed to it (St. John of God Limited -v- Brooks 1992 IRLR 546). This principle is most helpful to employers since, in a well-planned programme, it is typically the case that only a small proportion of staff will refuse to sign to new terms and conditions of employment.

Should you have any questions please contact your usual Pannone contact or: James Lister, Partner, tel 0161 909 4305 or email: [email protected]

The material in this guidance note is intended for information purposes only. Although the law referred to is correct at the time of printing, there may have been changes subsequently. Therefore the information within this guidance note should not be applied to any particular set of facts or relied upon without legal or other professional advice. The content of this guidance note is the copyright work of Pannone part of Slater & Gordon and no part of it may be reproduced in any form without the prior permission of Pannone part of Slater & Gordon. Slater & Gordon (UK) LLP is authorised and regulated by the Solicitors Regulation Authority. www.slatergordon.co.uk