Who to consult with in a large-scale contractual variation

The process of consulting about changing employees’ terms and conditions of employment can be a confusing minefield of requirements and information sharing.

In a large-scale exercise, the situation is really not helped by the relevant piece of legislation (s.188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA)) being drafted to cover collective consultation in large-scale redundancy situations with no mention of consultation about changing employment contracts T&Cs (which, let’s not forget, an employer will often be wanting to introduce specifically to avoid redundancies occurring).

As the statute doesn’t help much, we need to turn to case law as a lighthouse to give us a guide on how to navigate the murky waters of collective consultation in this situation.

Let’s have a look at the main points an employer needs to be aware of.

When is collective consultation required?

In a changing terms and conditions situation, it will be necessary to collectively consult if and when it becomes clear that more than 20 employees at one establishment are not going to be prepared to agree to the changes you are seeking to make.

As will become clear below, collective consultation is required before employees are made redundant. We will be dealing with collective redundancy consultation in more detail in the coming weeks, however, the same collective redundancy consultation process must also be followed in a changing T&Cs situation.

This is the case even though the typical aim of a contractual change situation is to avoid redundancies. However, as one of the potential outcomes of a contractual change exercise might be dismissal and reengagement and because earlier case law (the EAT in GMB v MAN Truck and Bus UK Ltd [2000] IRLR 636) has established that a dismissal in this situation is a dismissal which is “not related to the individual concerned”, it means that the collective consultation obligations in s.188 – and potential entitlement to a protective award – apply.

How long does collective consultation last?

If you have between 20-99 employees at the same establishment that are not prepared to agree to the proposed changes, then collective consultation is required to last at least 30 days before any notice of termination of employment is given. However, if there are more than 100 employees who are not prepared to agree, the timescale increases to at least 45 days.

In practice, these timescales from beginning to end may be longer, to take account of the need to provide information to the representatives before consultation begins and also if you need to let the affected employees elect representatives from among their number.

What do you need to do before you collectively consult?

As soon as it becomes clear that more than 20 employees are potentially not going to be prepared to agree to the proposed changes, we recommend you complete an HR1 form.

The HR1 form has predominantly been drafted for a large-scale redundancy situation. It is not easy to complete it in contract change situations as all the information requested is about likely redundancies. It would be helpful if there were a second version of the HR1 form specifically dealing with contractual change situations, but we understand that this is not actively being considered by The Insolvency Service at this time. However, given that one potential outcome of the collective consultation process may be a dismissal and reengagement scenario, you will still have to complete an HR1 form to notify the Secretary of State of those possible dismissals.

So, what should you do?

Our practical recommendation is that when you provide the HR1 form to the Secretary of State, you accompany this with a detailed cover letter in which you clearly explain:

• that you are not seeking to make all of the employees included in the form redundant but are instead intending to undertake a collective consultation process about changing T&Cs
• that your hope is that all of the employees concerned will agree to the change, so
• that no dismissals will need to be made.

In effect, the message in the covering letter is that potential termination of employment is only the worst-case scenario. This covering letter becomes particularly important when dealing with representatives as it ‘sets the scene’ of the forthcoming consultation process.

If you are facing this potential situation and need help with completing the HR1 form or deciding on what level of detail to include in the covering letter, we can help.

Who are the representatives you need to consult with?

There are three separate categories of representative depending on the makeup of your workforce:

• Trade Union: If your business recognises a trade union, then you will need to consult with representatives of that union. Bear in mind that your collective agreement may mean that you need to do this consultation even if the change you are proposing affects fewer than 20 employees. Also bear in mind that if there are members of more than one union affected by the proposed change, then you will need to consult with each relevant union, albeit that you can do so in a single consultation process, you needn’t run separate consultation processes running side by side.
• Elected board of representatives: If you do not recognise a trade union, but instead there is an elected employee representative body within your company, then this is who you would consult with if employee T&Cs generally form part of the remit of discussions with that group. However, if they are elected for the purpose of health and safety for example, then they may not be suitable to deal with the consultation on changing T&Cs.
• Employee representatives: Where there is no recognised trade union or elected board of representatives, the affected employees will need to elect representatives among themselves to consult on behalf of the wider collective. This will add to the timescales of the project, albeit not necessarily by much more than a week or so.

What information do you need to provide?

Section 188(4) of TULRCA provides a list of information which needs to be provided. Again, the statute only deals with redundancy, so all the information required to be provided under this Act is not necessarily or obviously relevant in a change of terms and conditions scenario:

• The reasons for the proposed dismissal, i.e., what is the purpose of the collective consultation and what is it that you are trying to change which may result in redundancy at the end?
• The numbers and descriptions of employees whom it is proposed to dismiss as redundant, i.e., how many employees are affected by the change which you need to consult with?
• The total number of employees of any such description employed by the employer at the establishment in question.
• The proposed method of carrying out the dismissals, with due regard to any agreed procedure, including the period over which the dismissals are to take effect, i.e., if the change in terms and conditions cannot be agreed, how will you carry out the dismissal and reengagement process?
• A copy of form HR1 (and cover letter) which has been sent to the Secretary of State.

If only the HR1 form is provided to representatives without any explanation, there is high chance that the reality of the situation is misunderstood. The representative may (deliberately or otherwise) interpret the HR1 as you seeking to make affected employees redundant, rather than the exact opposite, which is to retain employees but on new terms and conditions of employment. This could leave you having to start the consultation process trying to regain the trust of the employees who you want to accept the proposed new contract terms. To reduce the risk of this, you should provide the representatives with a copy of the covering letter when you provide them with the HR1.

What do you need to consult with the representatives about?

What does consultation look like?

Consultation needs to be meaningful and with a view of reaching an agreement. Consultation is not a one-way street with you providing the representatives with information and expecting them to simply accept your position. It is a two-way process whereby you give enough time to allow the representatives to meet with your employees to discuss with them your proposed changes, receive feedback and gather suggestions on amending the proposal, and then to raise these points with you in a subsequent meeting.

Note that it is not a negotiation, but you will still need to take on board any suggestions raised and respond as to whether any of them are workable or not, as well as to consider any alternative approaches that may achieve your underlying business needs but in a way which may be acceptable to more of the employees.

Have you given time for the representatives to discuss your proposal with the employees?

As outlined above, you need to allocate either 30 or 45 days (at least) for the collective consultation process depending on the number of employees who are not prepared to agree to the changes. However, you may find yourself going over these prescribed timescales.

You need to give enough time for the representatives to feedback to the employees they represent and give them time to consider the proposal. Don’t rush the process as it may create a hostile environment if you are pushing for acceptance instead of giving your employees a little more time.

What are your business reasons for the change in T&Cs?

Having a clear understanding of the business reasons for the proposed change is vital. You need to be able to justify to your employees that there is a real need for the change. If you can explain clearly the importance of the change, then you increase your chances of making positive steps in the consultation process.

For example, the change may be required to save money as the business can’t sustain the current working arrangements but wants to avoid redundancies and/ or insolvency.

Evaluating what the business reasons are before proceeding with negotiations starts you off in a stronger more reasoned position when the representatives push back on your proposal.

Do the representatives understand your business reasons?

It is all very well the people at the top understanding the business reasons for the change, but now you need to ensure that your employees understand it as well. 

It will always be harder to convince employees to accept a position worse than the one they are currently in. Informing them of the business reasons is a good place to start. Do they know, for instance, that the current employment arrangements might mean that the business is losing money each month and is not sustainable in the long run? Are your employees aware that if changes aren’t made the owners of the business may decide to close the site?

Being clear and transparent about the reason for the change is crucial to allow your employees to make decisions about whether or not to accept the proposed change on an informed basis.

What improvement are you trying to achieve (or detriment are you trying to overcome) with the proposed change?

This message is of particular importance to get across to the employees as their most likely concern will be “How does this change affect me?”

Have you considered other options for addressing the problem?

You should also discuss with the representatives what other options to the proposed change you have already considered and why your view is that none of those are ones which will address the business issue you are wanting to tackle by the change (or not as effectively). For example, they may not solve the problem in the long run, cost too much to implement, or leave the employees in a worse position. A key message tends to be that “making these changes will prevent redundancies”.

A genuinely meaningful consultation exercise might involve giving representatives access to the data on which other alternatives were considered and an opportunity for the representatives to consider that and use the data to suggest other alternative options.

Have you considered any proposals presented by the representatives?

You need to be seen to consider all proposals made, and if you do not accept them, give reasons why. These could be economical, practical, legal, or any other reason, but the proposals made by the representative will be from the collective mind of your employees, so taking the time to consider what it is they are asking for is important.

A refusal to consider alternative proposals would suggest that you don’t care about your employees’ ideas and also that you have not conducted ‘meaningful’ consultation with a view to reaching agreement. That could have an impact in the event of a subsequent claim for failure to consult (see below).

Have you considered whether you can make any changes to the proposals to address concerns raised?

It is worthwhile to keep an open mind on this. You may face strong resistance from your workforce to the change you are proposing but agreeing with a suggestion proposed by representatives might mean that you are able to reach an agreed position quite quickly. It won’t necessarily come down to money and could be something about how a change might work in practice or something else completely, such as sprucing up facilities in a staffroom, setting up a new social team/ event. There’s little end to the potential points that you might easily be able to offer without adversely affecting your ability to achieve the underlying business issue driving the change in the first place and it’s sensible not to rule anything out.

What might you have to consider if after consultation the proposed changes are not accepted by the employees?

The likelihood is that you have proposed these changes because of the importance to the business and therefore, you cannot accept them being rejected by employees. If collective consultation closes without you having been able to reach agreement with the representatives about the change proposed, then the next stage is to consult with the employees individually with a view to seeking their agreement to it.

(Note that if you have collective bargaining, you should exhaust the collective bargaining procedure, including any dispute resolution process it contains, before proceeding to consultation with employees individually. If you don’t do that, you risk facing a claim of ‘unlawful inducement’ and paying mandatory compensation (currently £4,554) to each employee who you have consulted with directly.)

We will be looking at individual consultation in a future piece. However, if the individual consultation exercise also does not lead to agreement, then the only option remaining is likely to be dismissal and reengagement.

This sounds like a lot of effort. Why is doing all that so important?

Collective consultation may sound like a lot of effort, but the costs to the business can be substantial if it is not done (at all, or incorrectly).

Protective award

Failure to comply with s.188 of TULRCA can leave you liable to a protective award for all employees who ought to have been the subject of collective consultation. The maximum protective award is up to 90 days’ gross pay for each affected employee, regardless of their length of service. Note that the statutory cap on a week’s pay does not apply to a protective award.

A protective award is a punitive award, rather than compensatory, meaning that that the starting point will be the full 90-day award. It is for the employer to then demonstrate the steps that were taken to consult properly so as to persuade a tribunal that the size of the protective award ought to be reduced.

You may be thinking that if your employees have ultimately agreed to accept the new employment contract, does it really matter that you didn’t collectively consult properly?

However, tribunals don’t take that sort of approach when dealing with breaches of s.188. The focus of the tribunal is not on the outcome of consultation for the employee, it is on the actions of the employer. Any failure to consult/ provide the necessary information has a high chance of being penalised by a tribunal even if the eventual outcome of the change is beneficial for the employee.

Unfair dismissal claims

It may be inevitable that you have to dismiss and reengage employees as we have explored above, but this leaves you open for claims of unfair dismissal from your employees.

It is widely accepted that any large-scale dismissal carried out without consultation can never be fair. This was established in the case of Polkey v A E Dayton Services Ltd [1987] where it was stated: “the employer will normally not act reasonably unless he warns and consults any employees affected or their representative”.

Potential criminal liability

Failing to provide a copy of the HR1 to the Secretary of State is a criminal offence. Since 2015, the penalty on conviction has been a potentially unlimited fine. The offence is not only one that an employer might be guilty of, because it is also possible for officers or employees who have “consented or connived” in the failure to send the HR1 to the Secretary of State to be convicted.

As at the date of writing, we are not aware of any successful prosecutions, but several have been brought and are still in process.

Undermining workplace relations

In additional to the potential financial costs, skipping the consultation process can also have a negative impact on morale and trust within your workforce.

Remember that despite the lengthy process and negotiations, consultation gives you the opportunity to have a conversation with your employees/ their representative and engage with them on an open basis.

The process may actually be successful because you can gather an understanding of what it is your employees want in return for you making the changes. As long as the negotiation is fruitful and you are happy with the outcome, you can make the changes to the T&Cs without leaving yourself open to legal action.