Suzanne Keenan, Director of Employment at Cleaver Fulton Rankin, explains how employers can make amendments to terms of employment in staff contracts without risking a breach of employment legislation, addressing key questions, misconceptions and dangerous pitfalls to avoid.
Do contracts only exist where they are in writing and signed?
No. A common misconception regarding employment contracts or changes to them is that for something to be contractual it must be in writing. This is incorrect. Contract law provides that contracts exist in the absence of anything on paper. Whilst there is a statutory obligation for employers to provide a written statement of employment particulars within two months of the start of the employment (Article 33(2) of the Employment Rights (Northern Ireland) Order 1996), this often isn’t done. Does this mean that there is no employment relationship or that there are no terms of employment binding the employer? In short, no; the employment relationship exists and the terms, whilst not in writing, have been created in practice by the behaviour of the Employer and Employee.
Setting aside the statutory obligation, it is highly beneficial for both parties to have a written Contract of Employment as it reduces the risk of litigation and helps ensure clarity around the employment relationship.
How can changes be made to terms of employment?
Changes to the contract (whether it is in writing or not) must be made with the consent of both parties to the contract. Consent can be express (provided in writing or by way of a signature), or it can be implied (through the actions of the parties, such as complying with the new terms and not objecting in any way).
Changes to terms of employment happen more often than you realise. Changes that are positive for an employee tend to occur with the consent of the Employer and Employee and no issues arise. These types of changes often include; pay rises, promotions, additional benefits (such as introducing company healthcare).
If an employer wishes to make changes that are less likely to be beneficial for employees, there are three options that can be taken to achieve this:
- Seeking the employee’s consent
Agreement can be sought on an individual basis or through a collective agreement that binds the relevant employees. If the rationale behind the change is well explained then this may persuade employees to accept.
It is beneficial to record this agreement where possible; this can be done with an email chain or a signed addendum to the existing contract.
Securing employees’ consent is most often the preferred way to impose changes and is the least risky approach from the legal perspective. Claims in such circumstances are relatively rare.
However some employers feel that offering the employee the option to consent may incite objections or suspicion regarding the change.
- Impose the change and let the employees decide how to respond
This can be a more discreet way to make a change however it may result in employees objecting, feeling disconnected and being upset with the lack of communication around the change. It may therefore adversely impact the employer/employee relationship.
It could also result in employees resigning and claiming constructive dismissal or making other claims such as breach of contract or unlawful deductions of wages depending on the circumstances.
- Terminate the existing employment contracts and offer re-engagement with the new terms
This is the most drastic (and often the least desirable way) to make changes.
The employer will need to follow the statutory dismissal procedure and this method may invoke Collective Consultation duties. This approach can give rise to unfair dismissal claims and other claims, however the offer of reengagement may mitigate this risk and may affect the level of damages employees could claim.
There has been some recent government guidance on this approach and some proposals to try to prevent this practice by employers however at this time no such law has been passed.
Common Pitfalls to Avoid
Don’t assume a general flexibility clause in an existing contract gives an employer free reign to make any changes it likes. These clauses are rarely found to be enforceable when challenged by employees in Tribunal.
Be mindful of changes in advance of, during or after a TUPE transfer. Employees who transfer pursuant to TUPE (Transfer of Undertakings (Protection of Employment)) legislation are protected from changes to their employment terms. Only certain changes are permitted in such circumstances and expert legal advice should be taken to establish whether your proposed change would meet the strict tests applied in this area before taking any action.
Take-Away
The approach taken will often depend on the number of employees affected, how the change will impact employees, the risk of litigation, the nature of the existing relationship and the overall commercial factors in play. It is hugely beneficial to consult with an expert employment lawyer in advance of taking any action. Advice can be provided on strategy vs risk and costs in the best interests of the business.
If you require advice on any of the issues raised within this article please do not hesitate to contact Cleaver Fulton Rankin’s Employment team.
This article has been produced for general information purposes and further advice should be sought from a professional advisor.
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