This week the experts, Adam Partington and Esther Smith advise on how to change a rate of pay.
The question: Change to rate of bank holiday pay
I am thinking of reducing the premium we pay to staff for working on a bank holiday from double time to time and a half. We have a strong business case for needing to reduce our cost base. It will also mean cutting those who have lieu time for bank holidays to 50% lieu time. This rate of pay and lieu time is defined in the contract of employment and therefore it’s a change to contractual terms and conditions.
My proposed process is to consult with employee forum representatives on behalf of all staff for a 30 day period and if no suitable alternatives are proposed, issue everyone with a new contract of employment providing 12 week’s notice of the change. We have just under 300 employees.
My questions are as follows:
– Is this the correct process to follow?
– What pitfalls could we come across?
– Will we need to meet with every individual employee to dismiss them from their old contract, or can this just be done in writing?
– What is the process if an employee refuses to accept the new contract?
Adam Partington, solicitor, Speechly Bircham
Changing terms of contracts of employment must be dealt with carefully in order to avoid claims by the affected employees.
A sensible approach would be to start by looking at the employment contracts in question in order to determine whether any of the terms of the contracts expressly authorise the employer to make the changes unilaterally. There may be a right in the contract which enables you specifically to vary the terms in relation to pay / lieu time for work on bank holidays. Alternatively, there may be a general right in the contract for you to vary contractual terms. There are, however, limits to the application of such clauses and you should seek advice before relying on such clauses. Assuming that the contracts of employment do not contain such express rights, you will need to seek other ways of varying the contracts.
You can unilaterally impose changes simply by issuing new contracts encompassing the new terms. You would, however, risk claims from employees for breach of contract (in order to recover their loss due to the decrease in pay) or unlawful deductions from wages. Alternatively, it may be open for the employees to resign and claim constructive wrongful and/or unfair dismissal as the changes are to fundamental terms of the contract and the imposition of a change may breach the implied term of trust and confidence between the employer and employee. This route is not therefore advisable.
The safest approach is to seek the employees’ express agreement to the changes in writing. It is important to ensure that such agreement is in writing in order to have evidence to defend against any potential claims, for example, for an unlawful deduction from wages. Further, you should be wary of an employee’s silence as evidence of implied agreement to the changes as employees may turn around at a later date and argue that they had not accepted the changes to their contract.
Because of the problems of unilaterally imposing the changes, you would need to consider termination and the immediate re-engagement of the employees on the new contractual terms of employment in the event that agreement cannot be reached. This is the approach you had in mind. This is so you can be more certain that the new contractual terms are binding on the employees. If you are proposing to dismiss and re-engage 20 or more employees at one establishment within a period of 90 days or less, the duties on you to collectively consult and to inform the Secretary of State will be triggered. Where between 20 and 99 employees are affected by the proposed change, dismissals cannot take effect until 30 days after the start of the consultation. Where 100 or more employees are affected by the proposed change, the dismissals cannot take effect until 90 days after the start of the consultation.
The suggestion of consulting with employees through their forum representatives, therefore, seems a reasonable approach. In relation to the length of the consultation, however, where dismissal and re-engagement is contemplated, the consultation will need to begin at least 90 days before the first dismissal. Further, on the facts available, I am unable to say whether the employee forum has been constituted in a way that permits you to collectively consult with the representatives in relation to dismissal and re-engagement, and so you would need to take specific legal advice on this. You may need to arrange for the election of employee representatives specifically for this purpose. A failure to collectively consult exposes you to a claim for 90 days’ gross pay per employee.
In addition to the collective consultation obligations referred to above, you should also consult individually with the employees. If you did end up terminating their contracts and offering re-engagement, you would need to invite the affected employees to individual meetings (with a companion) to explain the decision to terminate the contract, to hear the employees’ representations and to offer the employee a right of appeal.
Of course, this is an overview of the factors you need to consider and you should obtain specific legal advice regarding the most appropriate process to follow in the circumstances.
Finally, if you ended up in the position of dismissing and re-engaging the employees, you would also need to ensure that you gave each employee their contractual notice for termination, in order to avoid claims for wrongful dismissal. You have proposed 12 weeks’ notice. You would need to be sure no-one had a longer notice period. This is the maximum statutory period of notice but there may have been specific agreement to a longer period.
You may also risk claims of unfair dismissal. To defend against such claims you would need to have established a potentially fair reason for the dismissal and be able to show that you acted reasonably in dismissing the employee for refusing to agree to the new terms of employment. Following an appropriate process and consulting the employees about the reasons for the changes is important in this respect. Your question does suggest that there would be a good business case for dismissing an employee who refused to accept the new terms.
It is difficult, however, to advise further without knowledge of the facts. The tribunal would consider such factors as the employer’s reasons for the new terms; the employee’s reasons for rejecting them; the notice given to the employees of the new terms; whether a reasonable consultation process was undertaken; and how many employees have accepted the new terms.
Esther Smith, partner, Thomas Eggar
Your proposed process looks fine, as you need to consult regarding changes to contractual terms and conditions of employment, although there is an argument that as you have 300 employees involved in this process, that you need to consult for 90 days rather than just 30.
If an employee refuses to agree to the new terms, you could either terminate and offer them re-engagement on the new terms or you could simply impose the new terms on them (and only pay them under the new contract for time in lieu or bank holidays).
The pitfalls of this process are that if you force the changes in, without agreement from the employees, you may get people resigning and claiming constructive dismissal (on the basis that the changes you have imposed on their contracts are fundamental) or alternatively staying and claiming unlawful deduction of wages when they are not paid under the “old” system. If you serve notice of termination of the old contracts and offer re-engagement on the new terms, people may bring claims of actual unfair dismissal (as opposed to constructive). The fact that you have offered a new contract gives you the argument that the individual has failed to mitigate their losses by not accepting the new contract, and ask the tribunal not to award any compensation in the event that the employee gets a finding of unfair dismissal.
There is no need to meet individually with each of the 200 employees to terminate, if you go down that route, as the termination will be effective if communicated to them in writing.
Esther Smith is a partner in Thomas Eggar’s Employment Law Unit. For further information, please visit Thomas Eggar.