changing contractual terms & restructuring

www.ms-solicitors.co.uk | 01273 609911 | [email protected]

Changing Contractual Terms & Restructuring

Community Works – 7 February 2018

Fiona Martin Martin Searle Solicitors


CHANGING CONTRACTUAL TERMS


Changes authorised by the contract

Changes that may be authorised by the contract of employment

For example, there may be a flexibility clause allowing the employer to alter

duties, hours, working locations, etc.

Such clauses must normally be specific about the changes that they seek to

authorise – and they are construed narrowly.

Flexibility clauses must always be exercised reasonably and reasonable notice

must be given of any change.

An employer who tries to implement changes which are not permitted by a

flexibility clause, or seeks to make legitimate changes unreasonably, will breach

the employee’s contract and will be at risk of claims.


Changes not authorised by the contract

If there is no flexibility clause, there are three ways in which an employer

may vary terms:

A. Seeking the employee's express agreement - either on an individual basis or

through a collective agreement.

B. Unilaterally imposing the change and relying on the employee's conduct to

establish implied agreement to the change.

C. Terminating their employment and offering re-employment on the new terms.


Express Agreement

This is often the simplest and clearest way of varying terms:

Agreements may be reached verbally (e.g. in the course of an individual

meeting) but for obvious reasons they ought to be confirmed in writing, e.g.

• Through a variation to contract letter signed by the employer and the

employee; or

• Through the employee emailing to confirm their agreement.

Where the variation involves a reduction to pay, employers may be at risk of

claims for “unauthorised deductions from wages” unless the agreement is in

writing.


Implied Agreement

If the employee does not give express agreement, they may nevertheless be

treated as accepting the change by their conduct, i.e. by continuing to work (or

accepting benefits) under the new terms.

The test is whether the employee’s conduct is “referable only” to the new terms.

Changes with immediate practical impact (e.g. a cut in pay or a change in

working hours) – an employer is normally entitled to regard the employee as

having accepted the change quite quickly, e.g. after 1-2 weeks/months of the

change.

Changes without immediate practical impact (e.g. mobility clauses) are more

difficult because the employee’s ongoing employment is not itself clear evidence

of acceptance. This is why many employers offer ‘new’ benefits alongside

changes. Once the employee accepts a new benefit, they are regarded as having

accepted the variation as a whole.


Statement of Changes

Where terms of employment have been varied, an employer may be required to

issue a Statement of Changes under section 4 of the Employment Rights Act

1996. This will be relevant if the change relates to:

• Rate of pay

• Intervals of payment

• Working hours

• Holiday entitlements

• Sickness and sick pay

• Pensions

• Notice periods

• Job titles

• Place of work


Unilateral imposition of the change

An employer who imposes a change unilaterally does so at their own risk.

This is because the employer is in breach of contract – unless they can show

express or implied acceptance of the varied terms.

An employee unwillingly faced with a variation to their terms has a number of

options – although in practice, they must respond promptly in order to avoid a

situation where they are regarded as having accepted the variation by their

conduct.


Employees options where there is unilateral

imposition of the change A. Work under the new terms “under protest”

Employees are allowed a reasonable amount of time in which to register their

protest – thus for changes implemented at short notice, greater time is allowed.

This involves the employee making it very clear that their continuing to work is

not to be treated as an acceptance of the change.

Meanwhile employees may express a willingness to trial a variation to the terms,

(e.g. place of work), but reserve the right to object later.

Where an employee works under protest, they can bring a claim for breach of

contract. If the variation involves changes to pay, they may also claim

unauthorised deductions from wages. This is sometimes known as "standing and

suing".


B. Resign and claim Constructive Unfair Dismissal

If the change is a fundamental one, the employee may choose to resign and

assert that they have been constructively dismissed.

The employee will need to resign “without undue delay”.

The employee will normally need to make it clear in their resignation letter why

they are leaving.

The employee may pursue claims for

• Wrongful Dismissal

• Unfair Dismissal (if the employee has two or more years’ continuous service)

If they have suffered a shortfall in wages before resigning, they may also have a

potential claim for unauthorised deductions from wages.

Employees options where there is unilateral

imposition of the change


Terminating employment and offering re-

engagement on new terms

If an employee refuses to expressly agree to a change, the employer may

dismiss and offer to re-engage on the new terms.

To avoid a claim for wrongful dismissal, the employee will need to dismiss with

the correct amount of notice. This will be determined by:

• the employees’ contract, but

• may be increased by s. 86 of the Employment Rights Act 1996 (one week for

each complete year of service, up to 12).

For employees with two or more years’ continuous service, the employer is at

risk of a claim for unfair dismissal.


Variations to Terms and Unfair Dismissal

Whether faced with an employee who has resigned and is pursuing a claim for

constructive unfair dismissal, or whether the employer has chosen to dismiss an

employee for refusing to accept a variation to terms, the employer will need to be

able to demonstrate both of the following:

a) That there was a potentially fair reason for dismissal – i.e. “some other

substantial reason”

This involves showing that there is a “sound business reason” – i.e. the change

the employer is seeking to impose is backed-up by a sound business reason.

b) That the employer acted reasonably.

An employer will not be found to act reasonably unless it has consulted properly

with the employee and followed a fair procedure. The fairness of the procedure

adopted will be scrutinised closely by an Employment Tribunal.


Some other substantial reason

In deciding whether a dismissal is fair or unfair, an Employment Tribunal

will consider:

– The employer's motives for introducing the changes.

– The employee‘s reasons for rejecting the changes.

– Whether the employees were given reasonable warning of the changes.

– Whether the changes and their full effect have been clearly explained.

– Whether the employer has undertaken an assessment of the impact of the

changes and whether it has considered alternatives to any changes.

– Whether the employer has attempted to obtain voluntary agreement.

– Whether a reasonable and genuine consultation process with the employee

has taken place. This includes listening to their reasons for rejecting the

changes, responding reasonably to objections, and making concessions

where reasonable to do so.

– Whether the majority of the employees affected have accepted the

changes.

– The position taken by any recognised trade union.


TUPE

Employers should exercise particular care when they are changing terms either

soon before or after a TUPE Transfer.

A detrimental change will be void where the sole or principal reason is:

1. The Transfer itself – e.g. following a harmonisation; or

2. A reason connected with the Transfer, unless that reason is

“Economic, Technical or Organisational” and

It “entails changes in the workforce”

If the Transfer “involves or would involve a substantial change in working

conditions to the material detriment of a person whose contract of

employment is or would be transferred” then the employee can treat

themselves as being “dismissed”. This right applies regardless of whether

the change has been accepted and regardless of the amount of time elapsed.


Works Councils

Specific obligations can arise under the Information and Consultation of

Employees Regulations 2004

This will be relevant where:

(a)There is an “Undertaking” with 50 or more employees that carries out an

economic activity (including not-for-profit); and

(b)Employees make a valid request to negotiate or the employer has given valid

notice of intention to negotiate.

Employers are expected to follow the ICE Regulations in order to negotiate via

works councils.


Practical tips for agreeing changes

The way in which employers approach the task of changing terms and

persuading employees to expressly agree to a change is significant. Essentially,

it is a selling exercise and the employer should be look for ways in which

employees may be more inclined to accept a change:

Employers should bear in mind the following important points when

communicating a proposed change to affected employees:

– Why is the change necessary?

• Often, the answer will be the financial position of the organisation. If

the alternative is a more formal restructuring (and ultimately job

losses), employees should be made aware of this. They are then

more likely to view the proposed change as the lesser of two evils.


Practical tips for agreeing changes

• Does all of the change have to be implemented at one time?

– It may be possible to make some changes over time and/or put in place

transitional arrangements. This may help to make the ultimate change

easier, particularly as employees can find the timing of a change more

disconcerting than the change itself.

• Can staff be offered any incentive to help them accept the change?

– Offering an additional benefit in return for a detrimental change is often

an effective way of securing agreement. This does not necessarily have

to be a financial benefit. Employers should consider whether there are

any innovative ways to induce staff to agree.

• The timing of a proposed change can be important.

– Securing agreement to a proposed change will be harder if the employee

already considers that they have a bad lot. Employers should consider

linking the introduction of a change with something beneficial which will

happen to employees at a certain time.


REDUNDANCY &

RESTRUCTURES


Redundancy

Redundancy is used to describe a situation in which an employer decides

to reduce the number of its employees, either:

– within the organisation as a whole; or

– within a particular site, unit, function or job role

An employer may decide to make redundancies for a variety of reasons,

including:

– Recession or other economic pressures making closure or reduction in

staff numbers necessary

– Changes in the nature of products or services provided

– Internal reorganisation to make more efficient use of roles and duties

– Technological developments resulting in change to some or all job

functions

– Relocation

The Legal Definition of Redundancy

Employment Rights Act 1996 s.139: An employee who is dismissed shall be taken to be

dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to:

(a) the fact that his employer has ceased or intends to cease –

(i) to carry on the business for the purposes of which the employee was employed by

him, or

(ii) to carry on that business in the place where the employee was so employed, or

(b) the fact that the requirements of that business –

(i) for employees to carry out work of a particular kind, or

(ii) for employees to carry out work of a particular kind in the place where the

employee was employed by the employer, have ceased or diminished or are expected

to cease or diminish

Diminished requirements of the business for

employees to do work of a particular kind

This is the form of redundancy that applies most commonly in restructures and reorganisations. It can arise where:

• There is the same amount of a particular kind of work but fewer employees are needed to do it (making efficient use of resources).

– E.g. where a managing director absorbs the duties of a general manager. Where a business is looking to save money, it may consolidate two roles into one and dispense with a management level.

• There is less work of a particular kind and fewer employees are needed to do it (the work shrinks and so does the headcount).

– E.g. where a customer reduces the amount of its orders.

• There is less work of a particular kind, but the same number of employees are required.

– E.g. this may occur where there is a change in job function or a reduction in hours of work



Requirements of the business are judged by employer

– Employment Tribunals recognise that it is for those running the business to

decide on its particular requirements and priorities. It is therefore for an employer

to determine which work (if any) is surplus to requirements.

– Employment Tribunals will not look behind the employer's decision or require it to

justify how or why the diminished requirement has arisen. What matters is that

there is in fact a reduction and it is genuinely the reason for the dismissal

The focus should always be on the needs of the business – not the failings of a

particular employee. Hence the role, not the person, is redundant.



What is work of a particular kind?

– Focus is on tasks or skills

• Work of a particular kind means work which is distinguished from other work

of the same general kind by requiring special aptitudes, skills or knowledge

– Level of experience may be relevant

• Example: a decision to replace “Mark 2 Producers” with "Mark 1 Producers”

was found to give rise to a redundancy situation because the two roles were

of a "different league".

– Mere changes to the contract (e.g. salary, status, shift pattern) are not enough



Part-time v full-time work?

– No satisfactory authorities on whether part-time work as opposed to full-time

work is "work of a particular kind“.

– But: if there is a reduction in number of hours then this is arguable.

– Replacing part-time work with full-time work (therefore increasing the amount of

work overall) does not amount to redundancy.

– An employee may consider that reduction of hours is not suitable alternative

employment.

Bumping

• The process of moving a potentially redundant employee (A) into another

role, and dismissing the employee currently performing that role (B)

– This is still a redundancy dismissal, even if there is no actual or

anticipated diminution in the requirements for employees to do B's work.

– If there is a reduction in the requirement for employees in one section of

an employer's business and an employee who becomes surplus or

redundant is transferred to another section of that business, an employee

who is displaced by the transfer of the first employee and is dismissed by

reason of that displacement is still dismissed by reason of redundancy.

• Bumping must be the reason for the dismissal

– It must be the transfer of the "bumping" employee (A) that causes the

"bumped" employee (B) to lose their job.

Restructures / Reorganisations

• Restructures / Reorganisations involve looking at what roles the

business needs – or no longer needs.

• It involves deciding whether certain roles should be removed or

replaced with another alternative role.

• It can also involve “merging” roles, which can result in the two

existing employees being required to “apply for” the newly created

jobs.

• If neither candidate is suitable then there may be a need to make

both redundant and advertise externally.

• Employees may or may not consider the new role to be suitable

alternative employment.

• Sometimes changes to terms and conditions will go to the heart of

the job being done by the employee and may represent a diminished

requirement for work of a particular kind (job role disappears, rather

than employees being pooled). This is fact-sensitive.

• In such cases, a reorganisation may give rise to redundancies if

certain employees are not offered the new terms or refuse to accept

them.

• When changing contractual terms or going through a reorganisation

always consider whether there is a redundancy situation.

Restructures / Reorganisations

Redundancy and TUPE

Outsourcing work which was previously / is currently done by

employees

– A redundancy situation can arise where an employer outsources

work previously done by its employees – e.g. to independent

contractors or an agency.

– In such a scenario, although the need for the work remains, and the

same number of individuals may continue to do the work, the

employer no longer needs employees to do that work.

– Where there is such an outsourcing, the service provision changes

provisions of the Transfer of Undertakings (Protection of

Employment) Regulations 2006 may apply so as to automatically

transfer the employees previously employed by the employer to the

external supplier.


Dismissing Fairly for Redundancy

In order to ensure that a dismissal for redundancy is fair, an employer must

establish that:

– Redundancy is the real reason for the dismissal

– The employer acted reasonably, in all the circumstances of the case.

In practice, this means ensuring that there is a genuine redundancy situation (see

earlier slides) and following a fair redundancy procedure.

An employer will normally not act reasonably (and a dismissal will therefore be

unfair) unless it:

‒ Warns and consults employees, or their representative(s), about the

proposed redundancy (see Consultation).

‒ Adopts a fair basis on which to select for redundancy. An employer must

identify an appropriate pool from which to select potentially redundant

employees and must select against proper criteria.

‒ Considers suitable alternative employment. An employer must search for

and, if it is available, offer suitable alternative employment within its

organisation.


Dismissing Fairly for Redundancy

An employer will normally not act reasonably - and a dismissal will therefore be

unfair - unless :

• The employer warns and consults employees or their representative(s) about

the proposed redundancy

• Adopts a fair basis on which to select for redundancy

• Considers suitable alternative employment


Warning and Consulting

Warning and Consulting

Warning and consultation are part of the same single process of consultation,

which should commence with a warning that the employee is at risk.

The key components of fair consultation

- The employer must have an open mind and still be capable of influence. As

such, consultation will only be meaningful if it happens at a formative stage.

- The employee must be given adequate information on which to respond.

- The employee must be given adequate time in which to respond. There are

no prescribed timescales, but the shorter the consultation, the less fair it is

likely to be.

- The employer should be able to demonstrate that it has considered the

response to the consultation – however the employer is not obliged to adopt

any or all of the suggestions expressed by the employees.


Consultation

The subject matter of the consultation will depend on the circumstances but it

should usually include the following:

• An opportunity for the employee to comment on the basis for selection -

both in terms of the pool and the selection criteria.

• An opportunity for the employer to explain any subjective scores, and an

opportunity for the employee to challenge their redundancy selection –

e.g. to explain any particular circumstances that might have led to their

selection, such as health issues, etc.

• An opportunity for the employee to suggest alternatives to redundancy.

• Considering any alternative employment that may exist within the

organisation.

• An opportunity for the employee to address any other matters or

concerns that they may have.


Fair Selection

This starts with either identifying a redundant role or an appropriate pool.

Employers have discretion over the pool however they must genuinely apply

their mind to the issue.

Their decision must be “within the range of reasonable responses”.

It is useful to seek agreement from employees/reps about the scope of the

pool.

The starting point will usually be:

• Which particular kind of work is ceasing or diminishing and

• Which employees perform that kind of work

Employers will also consider:

• The extent to which employees are doing similar work

• The extent to which employees' jobs are interchangeable


Fair Selection Criteria

Employers should then draw-up appropriate selection criteria – and weightings:

• The criteria should, as far as possible, be objective

• The criteria should be measurable, i.e. not based on someone's personal

opinion

• They should also be discussed and ideally agreed with any recognised union

at the start of the redundancy exercise.

Potentially fair selection criteria include:

Performance and ability, i.e. relating to skill and knowledge

Employers should refer to written records, such as up-to-date appraisals, ideally with

independent verification.

Scoring should be undertaken by more than one individual to minimise subjectivity.

Where performance is immeasurable, any subjective analysis must be justified.


Fair Selection Criteria

Disciplinary records

Accuracy of the information should be checked.

Length of service

This criterion should be weighted lower than others to reduce the risk of age

discrimination claims.

“Last In First Out” is only likely to be appropriate if it is used as "tie breaker".

Attendance records.

The accuracy of the information and reasons behind absences should be checked:

• Pregnancy-related illness, maternity or other family leave should be discounted.

• Where absence is connected with a disability, the employee may pursue a

claim for “discrimination arising from disability” and/or “failure to make

reasonable adjustments”. Consideration should be given to discounting

disability-related absence.


Suitable Alternative Employment

Employers must undertake a sufficiently thorough search for alternative

employment and it is best practice to document this properly.

The search must continue until the dismissal takes effect.

Employers must provide employees with sufficient information about any

vacancies so that they are able to take an informed view as to whether the

position is suitable for them.

Employers should not assume that an employee would not be interested in

specific roles.


Suitable Alternative Employment

Competitive Interviewing Process

Where more than one redundant employee applies for a vacant role, employers

are afforded greater discretion about how to select.

Employers are entitled to undertake a competitive interview process and appoint

the candidate they consider to be best for the job, even if this is based on its

subjective view.

The employer simply needs to act “in good faith”.

An exception to this is when any potentially redundant employees are on

maternity (or adoption) leave – those employees have an automatic right to

be offered any suitable vacancies.


Alternatives to Redundancy

• Reducing headcount

– voluntary redundancy

– recruitment freeze

– withdrawing new job offers

– deferring new joiners

– reducing agency staff

– redeployment or secondment of staff

– early retirement

• Temporary stoppages

• sabbaticals

• unpaid leave

• holidays

• lay-offs


Alternatives to Redundancy

• Reducing hours

– short-time working

– part-time or flexible working

– overtime bans

• Reducing payroll costs

– salary sacrifice

– pay freezes

– pay cuts

– pension changes

– withdrawal of bonus

– benefit sacrifice (e.g. reducing full sick pay)


Voluntary Redundancies

Before the consultation process begins, consider asking for volunteers for

redundancy. However, to manage voluntary redundancies properly make it clear

that:

• You will consider all requests for voluntary redundancy but that you reserve

the right not to accept all applications – this will ensure that you do not allow

too many voluntary redundancies or lose key staff.

• You may still have to make compulsory redundancies if you do not receive a

sufficient number of appropriate volunteers.

• Anybody who volunteers for redundancy will not be viewed negatively in a

selection process (i.e. if their application for redundancy fails)

• Anybody volunteering for redundancy can change their mind and withdraw

their request by a specified date.

• Anybody volunteering for redundancy will still be regarded as ‘dismissed by

reason of redundancy’; thus they will receive usual or possibly enhanced

redundancy entitlements.


Practical Tips

Plan in advance

– Managers involved in the process should familiarise themselves with the

employer's legal obligations.

– Ensure that relevant line managers are available to hold the meetings

and provide necessary support to employees at risk of redundancy.

– Managers should check that HR records are comprehensive enough for

the purposes of scoring employees. If there are gaps in the records, or

their reliability is doubtful, managers should consider alternative ways to

measure employees against criteria.

– Managers should draw up a list of proposed criteria, including

appropriate weightings.


Practical Tips

To ensure fairness and reduce the risk of discrimination claims, absent

employees must be included in the consultation process

• Particularly those on long-term sick leave or maternity leave.

• They should be kept informed of the position, receiving the same

information in writing as other employees, as well as being actively

involved in the consultation process.

• Ideally, consultation should happen face-to-face with them.

• The employer should try and accommodate requests for flexibility, such

as meeting at the employee's home or having meetings outside office

hours. If the employee is unable to have face-to-face meetings, the

employer should do its best to consult by other means. In some

circumstances, this might entail consulting by phone and/or letter.

Martin Searle Solicitors

Brighton Eastbourne

Crawley Croydon

Shoreham Haywards Heath

T: 01273 609911 [email protected]


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