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[Employment] CHANGING EMPLOYMENT CONTRACTS

14 May 2021

John Clinch



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Returning to the workplace after a long absence has caused many firms to think about a reset.  Workforce restructuring can involve reducing headcount, reallocating duties, or changing terms and conditions.  But can employment contracts be changed lawfully?  We take a brief look.


How can contracts of employment be varied?

Because there are two parties to each contract, you and the employee, the short answer is that contracts can be varied only by agreement.  In some cases, agreement will never be a problem - when, for example, you are giving a pay rise (technically, amending the payment clause) or allowing more holiday.   The difficulty comes if you would like terms less favourable to staff to apply - if, for example, you think that your sick pay conditions are too generous, or you want to change work location.


What if we just imposed new terms?

This can sometimes work.  Some firms take a gamble and just declare new terms to apply, hoping that no-one will object.  Sometimes no-one does and so the new terms then become, after a period, the terms that apply.  One problem with this is this action has rather uncertain consequences.  Another is that staff often do object.  All they need do is declare that they do not agree to the new terms, work on under protest, and reserve their right to take legal action at a later date.

If we can achieve agreement, how should that be recorded?

You will want there to be no doubt about what the new terms say so you should issue a fresh written contract containing the up-to-date terms.  Ideally, you would want these signed by each employee so there can be no dispute about what was agreed.

How can firms encourage agreement?

If you can’t persuade each employee to agree to less generous terms, then there are a few options.   One is to offer, if you can, a mixed package to include terms that are more generous as well as other terms that are less generous.  Another is to offer a buy-out of terms - a one-off payment to employees who agree to give up some of their contractual rights.


Is agreement ever unlawful?

Yes.  Firms cannot agree fresh terms and conditions if workers are transferred to them under the TUPE Regulations.  And statute imposes certain minimum standards - for example, the National Minimum (or Living) Wage, minimum holiday, and maximum hours.  Another way of looking at this is that it is not possible to ‘contract out’ of statutory employment rights even if both sides want to.  If any employers do this, the worker can still assert their statutory rights and if necessary, go to an employment tribunal to do so.  In some cases, like a failure to pay the Minimum Wage, state authorities are involved and can even prosecute.


What if agreement proves impossible?

If this happens, the contract cannot be varied.  But it can be terminated by giving notice and a new contract with the varied terms be offered to staff immediately after the old one ends.  This is sometimes called ‘fire and re-hire’.  Staff are then forced to accept the new terms or lose their jobs.


So why doesn’t every employer just do that?

Because it involves careful planning and organisation, and the consequences can be damaging if professional advice is not followed.  The problem is that terminating a contract is a dismissal, even though fresh contracts are being offered immediately afterwards.  And any dismissal gives all staff with over two years’ service the right to make a tribunal claim for unfair dismissal.  As if that was not bad enough, the law imposes a duty to consult the workforce collectively before giving notice of termination if 20 or more contracts are being terminated.  Where there is no trade union, this involves asking staff to elect representatives and then informing and consulting them about the terminations.


This sounds problematic - do employers ever do this?

Yes, and more often than you might think.  The courts tend to take a relatively relaxed view about the business reasons for firing and re-hiring.   The key thing is to get the process right: getting it wrong can make the dismissals unfair and risks claims for a failure to consult.

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Solicitor/Senior Associate/Employment

John Clinch