Changing terms and conditions of employment: employer considerations

Once an employment contract is entered into, both employer and employee are bound by it. That doesn’t mean it can’t be changed but a contract may only be validly varied in accordance with its terms or with the agreement of the parties (or in some circumstances with a trade union or other employee representatives).

Two categories of terms and conditions changes

Changes to terms and conditions of employment generally fall into two categories:

1. specific changes to the terms of a particular employee’s employment contract (such as changes to pay rates, hours of work, and/ or restrictive covenants); or
2. changes imposed as part of a wider programme of harmonisation across the employer’s business.

As a first step, the employer should consider whether the changes they desire can in fact be implemented in accordance with the terms of the employee’s contract and as such whether the employer is actually proposing to change the contract. Some changes may be authorised by the employment contract itself (for instance, the reasonable exercise of a mobility clause in relation to an employee’s place of work) and non-contractual benefits can generally be withdrawn or amended at the employer’s discretion.

How employment contracts can be varied

Where implementing changes not authorised by the contract which therefore involve making contractual variations, there are generally three options available to an employer:

1. to seek employee agreement to the changes;
2. to terminate the existing employment contract and offer re-engagement on the new terms (also known as “fire and rehire”); or
3. to unilaterally impose the changes and leave it to the employee to decide how to respond.

We will be looking at these in upcoming insight.

Top tips

The way in which employers approach changing terms and persuading employees to expressly agree to a change is fundamental to the success of the task. Handled badly, changing terms and conditions can damage staff morale, trust, productivity and working relations and give rise to claims (e.g. for unfair dismissal, breach of contract and in some cases unlawful discrimination), so it is critical to be prepared before communicating proposed changes to employees and to remain engaged and open-minded throughout any consultation period.

In particular, employers should consider the following:

• What is the business reason for the change? It’s important to be able to explain to employees why the business needs to change its terms and conditions, so that they have a clear understanding of the commercial reasons(s) for the proposal. This will also assist with demonstrating the fairness of any resulting dismissals (should they be necessary).
• Can you offer anything to help persuade employees to accept the change? Offering an additional benefit in return for varying terms and conditions can be an effective way of ensuring employee buy-in to any detrimental changes required.
• Can you consider phasing in the changes over a period of time? You should consider if you may be able to implement some changes on a phased basis. Or (subject to the urgency of the need to impose changes), could you continue with the old terms for an existing group of employees (e.g., who are longer serving or potentially closer to retirement) but introduce the new terms for any new starters, or as and when existing employees are promoted into a role which requires the new terms? That would of course need to be balanced against the legal risks (e.g. potential claims of age discrimination), and potential impact on morale, of a ‘two-tier’ workforce.
• Engage with employees’ concerns and questions. Employees are more likely to be inflexible when they do not feel that their concerns are being listened to, even if you are ultimately not able to accommodate all of the views being expressed. Listening with an open mind – and being open to other ideas – is key to consultation.
• Think about the timing of a proposed change. For example, introducing changes at the same time as annual salary reviews (since the salary increase could be incorporated into a package of measures and as a trade-off for a less favourable changes).
• Collective consultation. Where you are proposing to ‘dismiss’  20 or more employees in a period of 90 days or less at one establishment (and even if you propose to re-engage all of them), the collective consultation obligations under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 will apply. ‘Dismissal’ in this context has a broad definition and focuses on what is happening to the relevant employment contracts rather than headcount.
• Union arrangements. Where you have collective bargaining arrangements in place, even if the contractual change exercise affects fewer than 20 employees, if the change is in the scope of matters covered by the collective agreement you need to collectively consult with the recognised trade union before doing so directly with the employees individually. If you do not do so you will risk a claim of “unlawful inducement” contrary to section 145B of the 1992 Act referred to above.
• TUPE. Separate principles apply to the variation of terms of employment in connection with transfers of undertakings under the Transfer of Employment (Protection of Employment) Regulations 2006, which are outside the scope of this note but we will be commenting on those in the coming weeks.