02 SEP 2016
Consultation for contractual change
Following the political and legal uncertainty of the Brexit vote, UK businesses may now find themselves facing decisions they did not foresee at the start of the year. But what options are available to employers who wish to change their employees' contracts of employment? Can they re-issue new contracts with different terms as and when they choose?
A contract is, in legal terms, a written agreement between two parties which is intended to be legally enforceable. By the very nature of this definition, both parties need to agree to what is contained within the contract for it to exist in the first place.
If an employer finds themselves in a situation where they need to make changes to an existing contract, the first thing they must do is check to see if their contract contains a right to vary terms. If there is a right it may be caveated by saying it will happen after reasonable consultation or with notice. In any event even where there is a right to vary an employer will be expected to act reasonably in trying to make the change by consulting with its employees. There may also be a statutory obligation to consult with employees where certain changes are being made, eg to pension entitlements. Normally the requirement is to consult with the employees although the contract or statutory obligations may require consultation with employee reps.
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If agreement is reached then an employer should ensure written consent to the changes has been obtained from each employee. To secure the employees’ agreement it may be necessary to incentivise them by agreeing to pay £x in return for them agreeing to the change.
If an employer is unable to obtain the agreement to a change voluntarily then they could try to impose the change. This step should not be taken lightly as it could create the ability for an employee to resign and successfully claim constructive unfair dismissal. An employer would have to be able to demonstrate it has tried to consult and it has a very good business reason to impose the change, if they have any prospect of defending their actions.
To impose the change the employer would have to terminate the existing contract by giving notice to terminate the contract and then re-hire them on the new terms. This could also require further consultation under the collective consultation obligations depending on the numbers involved.
Changing a contract of employment needs careful consideration and taking specialist employment law advice at an early stage can reap benefits later and avoid a disgruntled workforce or a flurry of ET claims from employers.