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Rather than making redundancies, some employers are choosing to retain staff but employ them on a different basis by cutting their pay, hours or benefits and thereby reduce their financial outlay.
This can avoid the loss of talent resulting from redundancies, together with the cost associated with redundancy payments and the future cost of recruitment when business picks up. A survey by the CBI with Harvey Nash has found that a majority of employers are planning a pay freeze for their next pay review (55%), a recruitment freeze (61%) and changing their organisation of working time in order to cut costs (62%). In contrast, 62% of companies surveyed still had their bonus structures in place, although the average value of almost a quarter of bonus schemes had been reduced. However, where changes to employees’ terms of employment are contemplated, the process is not necessarily straightforward and employers need to be aware of the legal issues.
What are the contractual terms?
To change a contractual term of employment without the consent of the employee would amount to a breach of contract. It is therefore vital to identify the terms of the contract. An employee’s terms and conditions of employment may be express, implied or incorporated from other sources. Express terms can be agreed orally or in writing, and are commonly found in offer letters and written contracts of employment. Terms set out in employee handbooks may be contractual, for example, terms relating to
pay and benefits are more likely to be contractual than working rules or policies. A term may be implied into a contract where for example it is necessary to give the contract business efficacy. Examples of implied terms are the duty of mutual trust and confidence between employer and employee.
How can contractual terms be changed?
General flexibility clauses in a contract, purporting to give the employer the right to change any term
of the contract, are only likely to be useful for implementing minor and/or non-detrimental changes.
The safest way to vary employees’ terms (particularly where it is to the employees’ detriment and
especially where it concerns pay and benefits) is by agreement, preferably in writing, however there
are some situations where even agreed variations may be challenged and advice should be sought. Consultation with the affected employees will be required and if the change is to the employee’s detriment, an employee should be given some consideration for the change.
If an employer changes a term of employment without the employee’s consent there will be a breach of contract. Should the employee continue in employment there is a possibility that they will have impliedly agreed to the variation. However, this is a risky strategy. Where there has been a breach of contract, the employee could:
• work under the new terms under protest and claim for breach of contract or unlawful deductions
from wages arising from the changes; or
• resign and claim constructive unfair dismissal, if the breach is sufficiently fundamental. Most changes to remuneration would be considered fundamental; or
• if appropriate, refuse to work under the new terms (for example, if there is a change to hours of work). If an employee refuses to agree to a change, the employer could terminate the existing contract and offer continued employment under the new terms. Provided the employer has served due notice on the employee (or made a payment in lieu of notice) it will not be liable for a wrongful dismissal claim. The employee may, however, have a claim for unfair dismissal resulting from the termination of the existing contract and advice should be sought before taking this action. Finally, employers should ensure that all variations made to terms and conditions are not discriminatory in any way.