The topic of employers looking to change employment contract terms is becoming increasingly important as we move towards the end of the Coronavirus Job Retention Scheme (CJRS) and beyond. This article provides a brief summary of the key steps involved in implementing contractual changes, in particular, in a dismissal and re-engagement scenario.

The UK unemployment rate is at its highest level for two years, and rates are expected to continue to rise with the end of the CJRS in October. Employers are faced with the twin challenges of an economic downturn and unprecedented changes to the ways in which employees want to work, all within the context of pre-pandemic employment contracts which do not account for the “new normal”.

In response, many businesses are looking to implement cost-cutting and other protective measures to adapt to the economic impact of the pandemic which stop short of mass redundancies, including making changes to employment contracts.

Step 1: Identify potential contractual cost-cutting measures

Pay cuts are an obvious measure, although other contractual changes under consideration might include closing workplaces and relocating existing staff or moving to permanent or semi-permanent working from home, and removing or reducing the value of other contractual benefits (e.g. pensions, life insurance and allowances). Introducing flexible working arrangements and reducing working hours (beyond the closure of the CJRS) are also examples.

Step 2: Review existing terms

A good next step would be to review existing terms to see whether the change is contractual. Non-contractual changes to employment policies and systems will be easier to implement as they can generally be imposed without employee consent. However, such changes will still require strong channels of communication between employer and employee to avoid leaving the staff feeling anxious and demoralised, and, from a legal perspective, to ensure the duty of mutual trust and confidence is maintained. It will be important to give careful consideration as to whether an apparent non-contractual provision has become contractual by way of custom and practice and/or what the impact on staff will be of making a change. If an apparent non-contractual change materially impacts staff in an adverse way (particularly financially), it may be risky to make changes on a unilateral basis.

For contractual changes, check whether the contract grants the employer the discretion to unilaterally make a change (e.g. some mobility clauses allow the employer to change the place of work without the employee’s express consent, provided there is sufficient engagement with staff prior to exercising the mobility clause). Where the change requires consent from the employee, it is best to engage in a constructive dialogue with the employees. Better communication generally leads to greater understanding, and the employee may be more likely to agree the variations in the first place. If sufficient numbers are impacted, consider whether a dismissal and re-engagement exercise and collective consultation is required (See Step 4).

Step 3: Obtain written consent

This can be a daunting prospect for employers with large numbers of employees, although we have seen, in the last few months, an increased willingness on employees to accept significant changes to their terms in order to preserve their jobs. Employers could rely on an employee not objecting instead of obtaining their consent. However, this would run the risk that later down the line those non-objecting employees will claim breach of contract or deduction from wages, where the change relates to remuneration. To avoid that risk, the safer route is to obtain express written agreement (by email, for instance).

Step 4: If employees refuse to consent, consider a dismissal and re-engagement process

If changes need to be implemented and employee consent is not forthcoming, there is the option to terminate and re-engage: i.e. propose the new terms to the employee and consult with them about terminating their current terms. If this is done with 20 or more employees, a collective consultation exercise would be needed (for a useful checklist on collective consultation procedure during the pandemic, see Bear in mind, where certain pensions-related changes are being proposed, there may be a separate collective consultation obligation under UK pensions legislation to be factored in.

Even though a collective dismissal and re-engagement process triggers a statutory obligation to consult with the workforce, engaging employees through consultation is important throughout the process, even if a duty to collectively consult is not triggered. In an unfair dismissal claim, the Tribunal will look at the degree of consultation with staff when determining the question of fairness, at both collective and individual level.

The dismissal and re-engagement, or “fire and rehire”, strategy should generally be an employer’s last resort. However, one benefit is that it reduces any uncertainty about whether the new terms have been agreed or not. If employees willingly accept the new terms instead of being dismissed, the old terms can no longer be relied upon, and so there is no risk of a breach of contract claim for failing to honour the old terms (as exists with unilateral imposition of change). If employers do ultimately have to dismiss staff through a fire and re-hire strategy, the prospects of a successful unfair dismissal claim will be mitigated through a carefully planned and executed collective and individual consultation process as well as a strong communication strategy with staff.

Look out for discriminatory changes

Finally, employers should also be careful about imposing contractual changes which could result in claims for indirect discrimination. If, for example, the gender or age makeup of the workforce is off-balance, a change in the terms could disproportionately disadvantage a group with a certain protected characteristic recognised by the Equality Act 2020. It would therefore be prudent for employers to check the potential impact of imposing such changes and consider carefully whether the changes can be objectively justified as a “proportionate means of achieving a legitimate aim”.