How to legally and fairly impose changes to pay and rewards
Can companies unilaterally change the terms of conditions of their staff? And what legal processes do they need to follow? Beverley Sunderland runs through some of the main hurdles and pitfalls.
Supermarket giant Asda recently hit the news regarding proposed changes to the terms and conditions of its staff, which unions said will leave some employees worse off. Asda said it would dismiss any employee who didn’t sign up to the new terms.
This raises an obvious question: can companies fairly and lawfully do this?
The starting point is the employment contract, as it might contain a clause saying whether terms can be changed, usually by the employer, without having to seek the employee’s permission. Usually these take the form of small changes with no material effect on the employee. However, sometimes an employer reserves the right to make any changes, but they must be done reasonably to avoid a claim of unfair dismissal.
If no clause in the contract allows either party to make changes then both parties must agree to any changes for them to be binding, so the contract is varied by mutual consent. This often arises in situations where, to avoid redundancy, all employees agree to take a pay cut.
If employees do not agree to the change and an employer tries to unilaterally impose it, an employee can either resign and claim constructive dismissal or say they do not agree to the change but continue working - known as ‘standing on their rights’. If employees lose out financially because of the change imposed, they can claim the difference in pay/benefits in a tribunal as an unlawful deduction from wages, or in a county court as a breach of contract claim.
Any employer planning to make changes to terms and conditions must decide at the outset what they will do with employees who do not agree. If they keep the employees in employment and, for example, cut their pay, they run the risk of a constructive dismissal claim or the employees objecting to the unilateral change and having an ongoing claim against the company for the difference in salary.
To ensure no future breach of contract claim, the employer should bring the employee’s employment to an end by serving notice and offer new contracts at the same time. If 20 or more employees are potentially affected at one ‘establishment’ then employers are caught by the rules on collective consultation, which normally apply in large scale redundancies. Not because the employees are redundant, but because potentially they are losing their jobs for a reason unconnected with their capability or conduct, and this is the definition of redundancy for the purposes of the collective consultation rules.
So an employer must consult with either a recognised trade union or elected representatives for a minimum of 30 days (45 days if it is 100 or more employees) about the proposals and failure to do so gives rise to an award of 90 days full pay (a ‘protective award’) for every employee losing their job. They must also submit an HR1 form. Failure to do so is a criminal offence.
Those not accepting the new contracts will be dismissed and the employer must then show that the employee has been dismissed for one of the five fair reasons. This will be ‘some other substantial reason’ – a legal catch-all for employers – a tribunal will examine the reasons behind the proposed change. It is unlikely to accept that there are many good reasons for reducing pay, unless an express term in the contract allows them to do so, or perhaps if it will save a company from going into liquidation – provided the cut is imposed on everyone. It will take into account factors such as the alternatives considered, the process followed and how many other employees have already signed up.
But there are other key changes an employer might fairly impose more easily, such as the imposition of restrictive covenants into a contract to protect its business interests, or changing the place of work or shift patterns. Provided the proposed restrictions are fair and reasonable, an employer has followed a fair process and given employees time to consider the changes, then potentially any dismissal for refusing to sign up to a new contract will be fair.
The right to bring an unfair dismissal claim applies to employees only - partners or members of an LLP cannot bring this kind of claim and the LLP or partnership deed will provide for the mechanism for making changes. For all those employed by a partnership and LLP, the ability to make changes is exactly the same as if employees were employed by a company.
Accountants having to assess potential future liabilities at a company must meet will also have to be alerted to an employer failing to collectively consult with employees and a protective award being made.
With ASDA predicted to dismiss 12,000 employees then assuming an average pay of £20,000, a protective award would be around £60m – a huge sum for any business to withstand for failing to follow the correct legal process.
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Beverley Sunderland, Managing Director of Crossland Employment Solicitors. Top-ranked in Chambers' Guide and Elite status in Legal 500, Beverley draws on her experience from thirty years in the law, as well as her time as a Commercial Director for a PLC and also as in-house...