Changing contracts

Changing Employment Contracts

Contracts of employment define the relationship between an employer and an employee. Like any other form of contract they can only be changed by agreement between the parties. If an employer wants to change the terms it can only do so with the employee’s agreement.

The contract of employment may contain an express provision allowing an employer to change the terms. If it does, an employer needs to make sure he complies with any conditions or limits on the power to change and will need to act reasonably in all the circumstances of the case.

There is a distinction between working conditions (or job content etc) and contractual terms. An employer may alter the former as part of its prerogative rights, but again must act reasonably in doing so.

If an employer wishes to make a change which would alter the contractual terms it may seek to do so in one of three ways:-

  1. Seek agreement.
  2. Act unilaterally and see what happens.
  3. Terminate the existing contract and offer new terms and conditions of employment.

An employer who acts unilaterally runs the risk of injunctions, constructive dismissal claims and/or damages claims. It passes the initiative to the employee and waits to see what he/she does.

If an employer seeks agreement it can take the stick or carrot approach. The stick would be, for example, the threat of dismissal if the employee will not accept the change. There is a risk that acceptance under such conditions might be considered by a Tribunal to be “duress” sufficient to negate the agreement. The carrot approach would be to offer something in return for acceptance. The cost may not be too great because it might be linked to improved working conditions or a pay increase, or perhaps a one-off payment to agree. The advantage to this course is the certainty of the situation.

By terminating the old contract with due notice and offering the employee new terms and conditions there will be no breach of contract. The employer will not lay itself open to a claim for breach of contract or constructive dismissal. But where an employee has been employed for at least one year termination by notice may give rise to an unfair dismissal claim and in the event of two years’ service also an entitlement to a redundancy payment. The employer may avoid an unfair dismissal claim if it can establish a fair reason for the dismissal and that it acted reasonably, e.g. redundancy or “some other substantial reason” in the context of a business re-organisation. An employer does not have to show that the re-organisation was essential, merely that there was a “sound good business reason”. Even if an employee does establish that he or she has been unfairly dismissed it is likely that compensation would be limited to a basic award.

In dismissing with or without notice, the appropriate statutory disciplinary procedure must be followed. It should also be borne in mind that a change in terms that adversely impacts on a particular group may give rise to a discrimination claim on the grounds of, for example, sex or disability. One example might be a change in working hours that disproportionately disadvantages women with child care responsibilities. Such claims may be brought regardless of an employee’s length of service, and there is no limit on the compensation that may be awarded in respect of such claims.

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