In times of high anxiety, such as we are experiencing at the moment, it is more important than ever that employers communicate openly and honestly with employees about the financial state of the business and how it is fairing against current market conditions. Everyone knows how it feels when good news is communicated and how motivating that can feel and employers are generally very good at telling their employees how well things are going. However, it is very easy to underestimate the power of communication when times are tough and to think that keeping financial difficulties under wraps is the best thing to do so as not to 'rock the boat'. In this challenging economic and competitive climate, it is essential that businesses now communicate more effectively with their employees who, for many, will represent a unique pool of talent, knowledge and ability specific to their business. These employees can drive operational efficiency, generate innovative new product and service ideas, and improve valuable customer/client relationships if they understand where the business is at and what's required to remain operational during the downturn. More than anything, people want to remain in employment and will pull together to achieve the crucial savings that employers need to remain operational and viable, to protect the business, and to ensure long term security for the majority of its employees. Now is the time and opportunity for employers to work closely with their employees and, in the long term, gain credibility by being open and honest about any difficulties the business may be experiencing.
For employers, the issue is that cost savings need to be achieved quickly in order to react and adapt to the new business environment imposed by a variety of external factors that are out of their control. The good news is that most cost saving exercises can be implemented immediately by agreement.
In order to be as successful as possible in gaining employee agreement to its proposals, employers should propose, rather than impose, and think through:-
- What the proposals are to be
- What the process will be
- Are there any timing issues (eg if a pension holiday is part of the proposal the Pension Regulatory Authority stipulates that a 60 day consultation period is implemented)
- What will the initial communication say (be honest and open)
- How will the benefits of the changes be sold to employees
- What opportunities for discussion and comment will there be
- Will any changes be reversible
- Will any changes be short term or long term
- Consider who are actually the right people in the business (with the required people skills) to undertake and delivery such a crucial project
- What is the fall back position should agreement with employees not be achieved
- Identify whether the change will amount to a contractual variation
Understanding the 'Legals'
Every employee has a contract of employment whether it is in writing or not. The employer can only amend the employment contract in accordance with its terms or with the agreement of the individual employee.
Identifying whether the change will amount to a contractual variation
Firstly, before you take any action, it is important that you review the contract of employment to check whether the change, if made, will actually amount to a contractual variation, as not every change will. An employer will not need to vary the contract if the change does not affect the contractual terms or the contract itself authorises the change, for example, if the employer has a discretion to vary the specific term on giving a period of notice.
If an employer varies the contract without the correct authority, the affected employee may bring a claim for breach of contract and/or constructive unfair dismissal against the employer.
The three principal options
An employer has three principal options available to them when trying to vary an employee's terms and conditions.
- Seek to obtain the agreement of your employees (either on an individual basis or through a collective agreement if the contract allows this) to the proposed changes.
- Consider any collective consultation obligations. For example, if the change will affect 20 or more employees, you should consider commencing collective consultation and notifying the Secretary of State. If there is an information and consultation agreement in place, you should inform and consult the appropriate representatives. You may also need to commence collective bargaining with any recognised trade union.
- Ideally the employee's written consent to the change should be obtained. Their agreement must be given voluntarily and free from duress. It is important that you give each employee an advanced warning of the proposed changes, explain fully the reasons for the changes, and provide them with a proposed timetable for implementation of the changes. You should provide the employee with a copy of the revised contract and ask them for their feedback.
- You should then hold consultation meetings with the employees (individually or collectively - if applicable), note down any objections they have to the changes and consider varying the revised contract to incorporate these concerns. You may need to make a number of revised versions following the employee's comments.
- Once you are satisfied that you have a final revised contract, you should write to the employee requesting their written agreement to the changes and setting a deadline for a response. The letter should also explain that if they do not accept the new terms then you may consider terminating their employment on notice and invite the employee to a meeting to discuss their refusal.
- For those employees who do not agree to the changes consider Options 2 or 3 below. Negotiating separate deals with those who have refused to agree the change is an option but can be damaging to morale.
- If employees refuse to agree to the changes then you may consider either dismissing the employee and offering re-engagement on the new terms or by unilaterally enforcing the new terms. You must, of course, take an organised and thorough approach to reduce the risk of any claims for unfair dismissal and/or breach of contract made by the employees.
- Again, you must thoroughly consult with the employees addressing the reasons for the changes and considering any objections they may have.
- In addition, there may be collective consultation obligations. The employees may have claims for unfair dismissal and (if the employer does not serve notice) breach of contract, but the offer of re-engagement may mitigate their loss.
- Impose the changes, and leave it to the employees to decide how to respond. Employers could take the risky approach of unilaterally changing terms and conditions, however, this is a very contentious route and is likely to lead to costly litigation. The employee may:
- Work under protest and claim breach of contract/unlawful deduction from wages;
- Claim constructive dismissal if there has been a fundamental breach of contract;
- Refuse to work under the new terms.
The majority of employers are, in the current climate, focusing on achieving changes to terms and conditions by using the Option 1 approach however before proposing any changes:
- Ensure the change is necessary for the success of the business. Consider whether staff could be incentivised to agree to the change.
- Consider timing. Is morale already low? If yes, consider delaying the change if possible.
- Check the terms of your employees' existing contracts of employment before making any alterations.
- Consider which would be the most appropriate method for implementing the changes and whether all the proposed changes have to be implemented at one time.
- Consult your employees thoroughly about any changes you wish to introduce and include their trade union or other elected representatives.
- Discuss any changes with your employees in a thorough and detailed manner, fully explaining the reasons for any planned alteration and take into consideration the impact of the proposed changes in individual circumstances.
- Record as much as possible in writing.