Changing Terms & Conditions. Lay Off & Short time working

This is an article looking at some of the choices facing employers in a downturn. The natural tendency is to think of redundancy but there are other alternatives, including changing terms and conditions, short time working and lay-offs. We'll look at these alternatives in turn. Changing terms and conditions Employers have the option of trying to change employees' terms and conditions, so as to reduce costs e.g. cutting pay, hours or benefits. It's a difficult area and one that should only be considered with the benefit of good legal advice. The first step is to identify the express and/or implied contractual terms that require amendment and that entails some understanding of the types of terms that can arise in a contract. Whilst section 1 of the Employment Rights Act 1996, entitles employees who have been employed for more than a month to a written statement of the particulars of their employment, such statements will not always include all the terms that may apply. There are four types of term in an employment contract: • express terms - terms that have been specifically agreed by the parties, either orally or in writing • implied terms - terms that are not spelt in writing but are taken as agreed because they are too obvious to need recording; or because they are part of the custom and practice of the business or industry; or because they can be logically deduced from the conduct of the parties. Terms may also be implied if they are necessary to give 'business efficacy' to the agreement as a whole • incorporated terms - terms that are incorporated into individual contracts from other sources such as collective agreements or works rules • Statutory terms - terms that are derived from statutes affecting the employment relationship, such as the 'equality clause' inserted into every individual contract by S.1 of the Equal Pay Act 1970. And so care must be taken in examining workplace rules and policies, such as those contained in staff handbooks. If a contract refers to more detailed terms in the handbook, then it risks examination and inclusion as a contractual right. Best practice is usually to make it clear in the handbook itself that the content of the same are not intended to have contractual effect. The next step is to work out how to effect change. The best method is simple; agreement. That way, there is unlikely to be any dispute or threat of a tribunal claim. Like the contract itself, an express variation may be made either orally or in writing. Writing is always best. The process allows all sides to enter into transparent negotiation during which the employer can spell out its difficulties and hopefully persuade the employees of the need to make cost cutting changes. Employers should be open to suggestions and compromise if the process is to be an inclusive one which produces results. Beware TUPE Care however, must be taken if you have inherited employees following a relevant TUPE transfer (Transfer of Undertakings (Protection of Employment) Regulations 2006 SI 2006/246). Under Regulation 4, there is an absolute prohibition on changing terms and conditions by reason of the transfer. The only variations of contract that can be agreed are those done for a reason unconnected with the transfer, and those done for a reason connected with the transfer that is an economic, technical or organisational reason entailing changes in the workforce (known as an ETO reason). Examination of such variations is outside of the scope of this article; suffice to say it is an extremely complicated area, and variations are notoriously hard to effect. Flexibility Clauses It is always worth while checking carefully the wording of the contract of employment itself as it may allow change. For example, an employer who wishes to change where an employee works may be able to rely a mobility clause. Similarly, a change in job function will be more easily arranged if the contractual provision defining what the employee is employed to do is sufficiently wide to include the new duties (often known as a flexibility clause). These clauses are not however licences to do what the employer wants. For instance, an employee who is subject to a mobility clause can still be unfairly dismissed for refusing to relocate, and a discriminatory exercise of authority is still discrimination, even if done within the terms of the contract. Moreover implied terms may operate to undermine the apparent blanket effectiveness of these clauses by imposing a duty of reasonableness on the employer's enforcement of the same. In a downturn, a flexibility clause of this type may give an employer the power to alter an employee's shift patterns to cut costs. However, the wording must be express and clear as case law has demonstrated time and again that tribunals are reluctant to allow such a clause to be used to reduce or increase the amount of hours an employee works if the clause does not expressly permit this. In contract law any ambiguity in drafting will be resolved against the party who seeks to rely on it to avoid obligations under the contract. And in exercising authority under even clear and well-drafted contractual terms, employers must give thought to general considerations of fairness, even during a downturn. The impact of such changes on employees must be taken into account. That said the case of Bateman v Asda Stores shows what can be accomplished with a well drafted clause. Asda sought to rely on a clause in their staff handbook which read Asda, "reserved the right to review, revise, amend or replace the contents of this handbook, and introduce new policies from time to time reflecting the changing needs of the business." The same handbook held details of pay and other conditions of employment. Importantly the handbook was incorporated into the Claimant's contracts of employment. The employment tribunal held that the clause did give Asda the right to change the employee's terms and conditions, including pay, without consent. On appeal, the EAT agreed. The wording in the handbook was wide enough to allow Asda to change matters set out in it and these included pay and work structure. As long as the changes were properly implemented and there was no breach of the implied term of trust and confidence, no consent was needed. It's worth noting however Asda did enter into extensive negotiation with staff and sought to ensure that no-one suffered a reduction in pay, thus addressing the duty of enforcing terms reasonably and fairly. When all else fails If negotiation fails an employer may decide to impose new terms unilaterally. This will almost inevitable be a breach of contract, which then throws the ball into the employee's court. An employee can then: • Do nothing - if by his or her conduct the employee instead affirms the contract, then the contract continues and the new, varied terms apply. It's a risk but it happens • Stand and sue - the employee continues to work under the new terms, but makes clear that he or she does not accept them and is working under protest, and reserves the right to sue for breach of contract in the High Court or county court. A claim cannot be taken in the tribunal because the contract must have ended to engage tribunal jurisdiction • resign and claim constructive dismissal - if the breach of contract is sufficiently fundamental, and the employee resigns in response to it, he or she may be able to claim unfair constructive dismissal Potentially the most serious of these for the employer is constructive dismissal. However not all imposed changes to terms and conditions will be sufficiently fundamental to warrant an employee resigning and claiming constructive dismissal. What is required is that the breach is repudiatory. In other words the breach goes to the heart of the contract and entitles the employee to regard the contract as being at an end. In addition, the employee's resignation must be in response to the breach of contract. If therefore it can be shown that the employee resigned in response to something other than a breach of contract, there will be no constructive dismissal. Of course the types of changes that an employer will want to make during a downturn are likely to be cuts in pay, hours or benefits and generally changes of this sort will amount to a repudiatory breach of contract. The hope is that the employees will be reluctant to go down the constructive dismissal particularly at the moment with rising unemployment. Hopefully therefore there can be fertile ground for negotiation however inevitably consensus sometimes cannot be reached. In such cases the employer is left with the option of dismissing the employees and offering re-engagement on new terms. Dismissal and re-engagement In simple terms, a fair dismissal under the ERA requires an employer to show a potentially fair reason for dismissal, that he acted reasonably in treating that reason as a sufficient reason for dismissal, and that the dismissal was overall and procedurally fair in all the circumstances. In cases where there has been a dismissal and re-engagement for business reasons, showing a potentially fair reason for dismissal is the first step. If an employer can show that the company had sound business reasons for dismissing an employee who refused to accept a change in terms and conditions, this is sufficient to establish 'some other substantial reason' for dismissing him or her, within the meaning of S.98(1) ERA. The change need not have been essential to the survival of the business. In relation to an employer's reasonableness in dismissing an employee for that reason, case law shows that the following may be relevant: • Whether the disadvantages that the employee will suffer as a result of the changes have been considered • Whether those disadvantages outweigh any advantages to the employer • Whether genuine consultation took place so ensure this is minuted • Whether the employer's response to the employee's objections was reasonable • Whether a majority of the employees accepted the changes • Whether alternative jobs or locations were considered Lay-off and short-time working A lay-off occurs when an employee whose contractual remuneration depends on his or her being provided with work of the kind that he or she is employed to do is not provided with such work, with the result that he or she is not entitled to any remuneration for that week. The related concept of short-time working occurs when there is a diminution in the work provided by the employer and, as a result, the remuneration for any week is less than half a week's pay. While temporarily laying off staff or putting them on short-time working may be an option to an employer facing a reduced cash flow, there are a number of legal considerations. Firstly, an employer must have contractual authority to withhold remuneration in the event that there is no work or a reduced demand for work. In the absence of such authority, laying-off an employee or putting them onto short-time work is likely to amount to a fundamental breach of contract. Secondly, there is a complicated statutory scheme under which an employee who is laid off or put on short-time working can claim a redundancy payment. While far from an exhaustive study of the statutory scheme the following should be noted: • to claim a redundancy payment an employee must have been laid off or kept on short-time either for four or more consecutive weeks or for a total of six weeks (no more than three of which can be consecutive) in a period of 13 weeks - S.148(2) ERA • An employee must give the employer notice of his or her intention to claim a redundancy payment - S.148 (1) ERA. Conclusion Redundancy will hopefully be a last option, and certainly if your contracts allow, it's advisable to explore lay-off and short time working as a temporary measure. After all we're dealing with people's lives. Longer term, the best option will always be an agreed variation of contract as to cost cutting between the employer and the employee. Failing that examine carefully the terms of the contract to see whether there is a flexibility clause that might allow an appropriate variation, but be careful to consider fairness and the effect on the employee. Next, there is the option to unilaterally vary the contract in the hope the employee/s will agree but mindful of all its attendant dangers, and finally if there is no agreement, dismissal with re-engagement remains an alternative. At all stages advice should be taken from a professional.