Opinion: Negotiating the legal minefield of employee contract renegotiations

Opinion: Negotiating the legal minefield of employee contract renegotiations

Charlotte Black, lawyer with travel law specialist TravLaw, head of TravLaw HR

The current market is pretty tough for business and for job seekers. Businesses are taking on fewer staff and, in some circumstances, making redundancies.

Where employers seek to avoid redundancies, they may still need to cut costs and increase efficiency and that can mean restructuring: altering job descriptions, changing reporting lines, altering work hours or changing the pay structure. All this means varying employees’ contracts of employment.

Such terms are considered fundamental to a contract of employment and, if altered without consent, could amount to a ‘repudiatory breach’ of contract.

It’s worth considering the following points:

1)       Variation of an existing contract of employment can only be brought about with the agreement of both parties: generally speaking, it is unlawful to vary a contract without consent and could constitute breach of contract.

2)       Before deciding to vary a contract, an employer should identify how receptive their employee/s are to the change and also identify ways in which they might encourage the employee/s to be receptive.

3)       Should the employer choose to go ahead with varying contracts of employment, they should consult fully with employees in respect of the proposed changes and seek to obtain agreement.

4)       If there are economic reasons for the variations proposed, they should not be afraid to communicate this to the employees. Staff are more likely to view a proposed change as acceptable if the alternative is potential job losses.

5)       Employers should consider whether there are incentives they could offer: for example, if the variation involves changes to the pay structure, could this potentially lead to improved earnings if targets are met?

What if an employee doesn’t agree to the variation? Varying contracts of employment unilaterally is an option, but it is important to be aware of the consequences.

An employee may choose to work ‘under protest’ and reserve the right to sue for breach of contract, or an employee may resign and claim constructive dismissal due to breach of contract. 

If an employee does not agree to the variation following consultation and the employer considers their refusal to accept it “unreasonable”, an alternative option would be to terminate the existing contract of employment and offer re-engagement on revised terms.

However, there are risks attached to this:

The employee may not accept the new role and claim constructive dismissal. They could potentially bring claims for breach of contract and unfair dismissal.

Damages for unfair dismissal include a basic award calculated by reference to a set formula and a compensatory award, which takes into account items such as future loss of earnings.

Should a claim go all the way to an Employment Tribunal, the tribunal would assess the case in part on how reasonably the employer and employee had acted: the reasonableness of the employer in dismissing the employee, and the reasonableness of the employee in refusing to accept the change.

A tribunal would also look at the context of the business reorganisation and whether the employer carried out the procedure fairly, for example by consulting with affected employees individually.

Factors usually taken into account include:

•        The employer’s reasons/motives for reorganising the business/ implementing contractual variations.

•        The employee’s reasons for rejecting the variation.

•        Whether the employee was given reasonable warning of the changes.

•        Whether the employee was fully consulted and informed about the reasons for the changes and the effect they would have.

•        Whether the employer has considered the impact of the changes upon the employee and considered any alternatives to varying the contracts.

•        Whether the employer sought the employee’s voluntary agreement.

•        Whether a consultation process was genuine, for example whether it involved listening to employees’ objections and responding to them.

•        Whether a majority of employees accepted the changes.

Charlotte Black is a lawyer with travel law specialist TravLaw and heads TravLaw HR.



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