When is it lawful to change terms and conditions of employment?

In the recent case of Bateman and Ors v Asda Stores Ltd, the Employment Appeals Tribunal (EAT) held that employers may reserve the right to unilaterally change the terms and conditions of employment. Previously, employers were advised to be cautious when changing terms and conditions without employees’ consent, even if they had the contractual right to do so.

This case, potentially gives employers greater scope to change terms and conditions without employees’ consent. However, this does not mean that employers can simply ignore the issues of consultation and/or employee consent from now on.

So what are the legal obligations on employers and employees in relation to terms and conditions of employment?

The first thing to note is that there is no legal obligation on employers to provide a written contract of employment - a verbal contract is still valid. However, there is a legal obligation on employers to provide a written statement of employment within 2 months of the employee’s start date. The statement only need contain the main terms, including :-

the names of the employer and employee
the date employment began
the job title and duties of the job
the place of work
the rate and frequency of pay, hours of work etc
entitlement to holidays, sickness pay and pension
details of notice periods
reference to collective agreements
details of any disciplinary and grievance procedures

Failure to provide this statement could result in an award of 2 weeks’ uncapped pay being awarded to an employee by a Tribunal.

Secondly, when a contract of employment has been issued, both parties are bound by the contract and generally neither can vary it without the agreement of the other. This raises a number of questions that are dealt with below.

1. Can the employer vary the contract unilaterally?
If the employer tries to impose a unilateral change to a contract, they will potentially be in breach of contract. To decide whether they are, two questions arise :-

is the term that is being changed, a term of the contract?
if it is, does the employer have the right to unilaterally vary it?

The terms and conditions in a contract of employment bind both the employer and the employee. Therefore if the term being varied is set out in the contract, regardless of the above case, it is advisable for employers to agree any changes with the employee, to avoid a future claim for breach of contract. Having said that, most employers also have other terms and conditions in place, in addition to those contained in the contract. These are typically contained in a staff handbook. Generally speaking, staff handbooks are non-contractual. Non-contractual terms do not bind the parties.

Therefore, if the employer wants to unilaterally change a term that is contained in a staff handbook (for example, a change to the sickness reporting procedure), they can do so without the employees’ consent. Notice should still be given to employees in advance of the change taking effect and employees should either be provided with their own copy of the handbook or at least have access to a central copy. Generally speaking, changes the terms of a non-contractual handbook, would not given an employee the right to issue a claim for breach of contract.

It is not always easy to know whether a particular term is intended to be contractual and Tribunals are often reluctant to rule that a term is non-contractual. It is therefore advisable for employers to make it absolutely clear which terms are contractual and which terms are non-contractual. This can be done by inserting a statement into the staff handbook and/or the contract to say that the contract is contractual and the handbook is non-contractual. Failure to clarify this point is likely to result in a Tribunal giving the benefit of the doubt to the employee.

Once it has been established that the term the employer wishes to change is a contractual term, the next question is whether the employer has the right to unilaterally change it? It is common for contracts of employment to state that “the employer reserves the right to unilaterally vary the contract at any time”. Whilst it is good practice for employers to reserve the right to do so, there is no guarantee that a Tribunal would enforce such a term.

Tribunals are more likely to enforce the term if the language used is not only clear and unambiguous but also where the result of changing the term is not too harsh or unreasonable. For example, even where an employer has a clear contractual right to unilaterally change terms and conditions, if the result is that an employee’s salary is reduced by 50%, this is likely to be held to be a breach of contract by a Tribunal on the basis that the change is both harsh and unreasonable. Such a change could also lead to an employee resigning and claiming constructive dismissal.

It is less likely to be held to be a breach of contract if the employer goes through extensive consultation with their employees, before deciding to make the changes to the terms and conditions. Essentially it comes down to how reasonable the employer has been.

2. If the employer cannot vary the contract unilaterally, how else can it be done?

By agreement with the employee – this is where there is a clear voluntary agreement between the employer and employee. If the employee can show that they were put under 'duress', they cannot be said to have agreed voluntarily.
Implied agreement through the conduct of the employee – this usually arises if the employer tries to unilaterally change the contract by imposing new terms and conditions and the employee is seen to accept this by their behaviour (eg working under the new terms for a long period without protest). However, a Tribunal will generally be reluctant to find that an employee has consented to change to their terms and conditions, in the absence of an express agreement. It is therefore advisable for the employer to obtain the employee’s consent in writing.
By union agreement which is binding on the employee – this usually occurs where the employer recognises a trade union and there is a collective agreement in place between the union and the employer. As long as the collective agreement is incorporated into individual contracts, employees will be bound by any change negotiated as a result of it. Employees do not need to be a union member or even be aware of the collective agreement to be bound by it.
Termination of the existing contract and re-employment under a new contract – if the employer wants to change a term in an employee’s contract and the employee refuses to give their consent, the employer may decide to terminate the employee’s existing contract by giving the correct notice and then offering the employee immediate re-engagement on new terms and conditions. If the employee is dismissed for refusing to accept the new contract, this will not always be unfair – it depends on the circumstances.
If the employer can provide a good business reason for the change (cost/customer demand etc), they are likely to be able to establish that the dismissal was for 'some other substantial reason' and was therefore potentially fair, provided they also followed a fair procedure (ie consulting with employees prior to making the change). A dismissal is more likely to be unfair if the employer simply imposes the change, without prior consultation with the employee.

3. What can an employee do if they don’t agree to changes to their contracts?

If the employer changes an employee’s contract of employment and the employee does not agree with the change, they have a number of options :

stay and work 'under protest' and bring a claim for unlawful deductions from wages or breach of contract;
in the case of a fundamental breach of contract, resign and claim constructive dismissal
if the changes to the contract fundamentally alters their role, they can continue to work under the new contract and claim unfair dismissal in relation to the old one
refuse to work under the new terms. However, bear in mind, this is likely to lead to a dismissal which may or may not be unfair depending on all the circumstances.

18 FEBRUARY 2010

For further information on Linder Myers expertise in dealing with the issues raised in this article please contact:

JOANNE WHITE, SOLICITOR
EMPLOYMENT DEPT
0161 837 6832
joanne.white@lindermyers.co.uk