It’s generally easy to change employment terms that are beneficial to employees such as an increase in pay or provision of a car allowance. It’s a totally different thing if you want to change terms that are less acceptable to an employee, for example a pay cut.

First, you need to determine whether the change affects the employment contract, and if so, how to make a legally binding change.

GOV.uk provide some useful guidance on changing an employment contract, and it is available online, here.

You should make sure you:

  • Familiarise yourself thoroughly with the details of any existing contracts before considering what alterations you want to make;
  • Consult your staff about any changes you wish to introduce and include their trade union or other elected representatives. Simply imposing changes could mean a claim by employees for damages in a civil court, employment tribunal, or a constructive dismissal claim before an employment tribunal;
  • Discuss any changes with your staff in a thorough and detailed way, fully explaining the reasons for any planned alteration and take into consideration the impact of the proposed changes in individual circumstances;
  • Try, if agreement cannot be reached with an employee on changes, to negotiate a new contract;
  • Put as much in writing as possible.

Does the employment contract need amendment?

employment termsA contract is a legally binding agreement between you and your employee, which is formed when the employee agrees to work for you for pay.

A change of terms will not require a change to the contract of employment where the change is simply a change in practice or where:

  • the existing contract allows the employer to change its terms;
  • the existing contractual terms are flexible enough to allow the proposed change without change (for example, a clause which requires an employee to carry out a range of duties);
  • the employer has a specific right to change the contract in this way.

However, the above options are not without problems and should only be used to make minor and reasonable changes to the terms that are beneficial to the employee. Specific flexibility clauses may be limited by implied terms (such as the obligation on the employer to act reasonably) and will be given a restrictive interpretation by a tribunal. Note that where flexibility clauses are open to interpretation, this interpretation will favour the employee.

If it is determined that the contract does need amending, then this can only be done with the employee’s agreement or within the scope of the existing terms which must be scrutinised.

The “contract” is made up of both oral and written agreements and may include:

  • Express terms which are terms explicitly agreed between the employer and employee;
  • Implied terms which may include:
    –       terms that are too obvious to mention (e.g. that the employee will not steal from the employer);
    –       those necessary to make the contract workable (e.g. that a person employed as a driver must have a current driving licence) – though it is often better to write down such terms in any case; and
    –       those that are the custom and practice of the business or industry;
  • Terms incorporated into individual contracts by reference to other documents, such as company handbooks or collective agreements with trade unions;
  • Terms imposed by law (e.g. the right not to be discriminated against on grounds of race or sex).

Non-contractual benefits and “policies” do not form part of the contractual terms. Altering non-contractual terms can also lead to discrimination claims and claims of breach of the implied duty of mutual trust and confidence. Note that just stating that a term is non-contractual does not make it so. If in doubt, seek legal advice.

How to change the contract

Where the change in terms does require the existing contract to be changed and the existing contract does not allow for this, the employer may consider the following options. Note that the employer must also provide the employee with a written statement of any changes to terms.

Express agreement

The employer can seek express agreement for the change in terms from the employee (or where it is appropriate through a binding collective agreement with a trade union or other collective body). Legally, the employee may agree to the employer’s proposals orally although it is safer to get written agreement. The employee must receive a consideration in return for the change in terms for the contractual amendment to be considered binding. In some cases, where the change has immediate effect, the employee’s continued employment can qualify as the consideration.

Implied agreement

Where the change has an immediate impact on the employee, the employer could consider introducing the change and hoping that the employee does not object so that their implied agreement to the new terms can be established. However, even if an employee continues to work without objection that does not guarantee implied agreement – particularly if the impact of the change of terms is delayed.

Such an imposed change of terms is a breach of contract and the employee may respond by:

  • refusing to work under the new terms;
  • resigning and bringing a constructive dismissal claim against the employer; or
  • “standing and suing”, where the employee works “under protest” and brings a breach of contract claim or in the case of a pay cut a claim for unlawful deductions from wages.

Termination and re-engagement

An employer may choose to terminate the existing contract and offer continued employment under the new, varied terms. In this case, the employer must comply with the statutory dismissal and disciplinary procedures for the dismissal not to be automatically unfair.

Again this strategy is not without risk and the employee may respond by:

  • bringing a claim for unfair dismissal, unless the employer can establish a potentially fair reason for dismissal and show that it acted reasonably in dismissing the employee for failure to agree to the change.
  • Bringing a claim for wrongful dismissal unless the employer gives the appropriate period of notice (or makes a payment in lieu of notice).

It should be noted that where the employer terminates the contracts of all employees “of a description or in a category to which the employee belongs” and then re-engages the employees then the statutory dismissal and disciplinary procedures may not apply. However, if the proposed change singles out a particular group of employees (for example older employees), then this could give rise to a claim of indirect discrimination.

In addition, where the collective consultation obligations apply then the statutory dismissal and disciplinary procedures may not apply. Where this approach is used to terminate the contracts of multiple employees the dismissals may be considered as redundancies for certain purposes. If 20 or more employees are affected the employer must notify the Secretary of State and comply with the statutory collective consultation obligations.

contracts of employmentThe employer will be required to inform and consult its employees in a number of circumstances, such as:

  • where the employer proposes to change the terms by terminating the contracts of 20 or more employees;
  • where there is a recognised trade union and the proposed change of terms may be subject to collective bargaining with trade union representatives.

Final words

Some time ago, I wrote the text for a couple of publications in Bizezia’s online business library dealing with Contracts of Employment and Changing Employment Terms. If you would like a copy of either (or both) of these, please email me at: mpollins@bizezia.com.

Martin Pollins

Martin Pollins

Managing Director at Bizezia
Martin Pollins is a Chartered Accountant with wide experience in corporate finance and business management. He holds a number of directorships and has served on the boards of several companies, including those listed on the London Stock Exchange, AIM and OFEX.

He was a Council member of the Institute of Chartered Accountants in England and Wales from 1988 to 1996.

Martin Pollins ran his own firm based in Sussex and was the first Accountancy firm in the UK to advertise on television and Martin went on to create and launch the CharterGroup Partnership (the UK's first Accountancy network) and then LawGroup UK (one of the largest networks of lawyers in the country).

Martin started work on the Bizezia concept in 1996, developing the broad range of information resources and products over the past 18 years.
Martin Pollins
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