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30th November, 2021

Changing Terms of Employment

man signing piece of paper

An employment contract is a legally binding agreement. Once it is made, both employer and employee are bound by its terms. It may only be amended in accordance with its terms or with the agreement of all parties.

In many cases, changes to terms of employment can be mutually agreed upon between employee and employer, particularly when the change benefits the employee such as a pay increase or promotion.

Occasionally, employers may wish to make changes to terms of employment that employees are less happy to accept. If the desired change is not authorised by the employment contract itself, there are three ways in which the employer may vary the contract of employment:

  1. To seek agreement to the changes from employees (either on an individual basis or through a collective agreement which is binding on the employees concerned) and confirm the changes in writing if accepted;
  2. To try to seek agreement to the changes from employees but if they refuse, terminate the existing employment contracts and offer re-engagement on the new terms (also known as ‘fire and rehire’). The employees may have claims for unfair dismissal and also a breach of contract if notice has not been provided, but the offer of re-engagement may mitigate their loss. Employers should be mindful that there would also be collective consultation obligations if this applies to 20 or more employees.
  3. To impose the changes unilaterally and leave it to the employees to decide how to respond. This may result in employees continuing to work to the new terms and establishing implied agreement to the changes, continuing to work but under protest to the changes (preserving their right to bring claims at a later stage) or resigning their employment and claiming constructive unfair dismissal in addition to other claims.

On 11 November 2021, Acas published updated advice on changing employment contracts in which they state that “fire and rehire is an extreme step that can seriously damage working relations and has significant legal risks for organisations.”

Acas advises that employers should fully inform and consult with employees and thoroughly explore all other options first to try and reach an agreement with staff on any contract changes. They advise that this process should include:

  • informing employees about the proposed changes and the business reasons for those changes;
  • explaining what other options have been considered and why they are not appropriate;
  • giving time for employees to consider the changes;
  • consulting with employees by asking for their feedback, answering any questions and responding to any concerns about the changes;
  • considering if any revisions to the proposed changes should be made to address any points raised;
  • exploring if there is any way in which a compromise could be reached; and
  • being patient.

Effective consultation helps build trust as it allows employees to understand the reasons behind the proposed changes and give their views.

Tensions can arise if employees feel that they have not had the opportunity to form decisions around proposals or do not support the changes. If changes are not managed well, employers may lose valued staff or find it difficult to attract new employees due to ensuing reputational damage. There is also the risk of legal claims or industrial action where there is a recognised trade union.

Contact us for help and advice.

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