Change is gonna come? Changing employee contracts

Julian Hoskins looks at the sometimes tricky area of changing terms and conditions of employment, focussing on two recent decisions (on variation clauses and age discrimination) and also providing a reminder of the key factors that need to be taken into account when considering contractual change.

An employee's terms of employment are likely to change in a number of ways during the course of their employment and most changes will be minor 'housekeeping' amendments, to which employees agree. However, from time to time, employers may need to make more substantive changes - for example, in order to facilitate new methods of service delivery - and agreement may not be forthcoming. In these circumstances, you may seek to

• make unilateral changes to employees' contracts of employment, or
• attempt to implement changes under a contractual variation clause.

Life would be very easy for employers if all contractual changes could be effected simply by relying on a general contractual variation clause, drafted along the lines of "the employer reserves the right to make changes to these terms and conditions of employment from time to time, as required".  However, tribunals are only likely to enforce such clauses if they are very clearly drafted and the changes are only minor / administrative and are not detrimental to employees. 

This month, the Employment Appeal Tribunal (EAT) has provided a useful reminder of this principle, in a case called Norman v National Audit Office. In this case, the National Audit Office (NAO) wanted to rely on a general right to vary clause, in order to reduce employees leave and sick pay entitlement.  The EAT found that the NAO could not enforce these changes because the variation clause on which they sought to rely came "nowhere near" the standard of being clear and unambiguous; the contract was simply said to be "subject to amendment" and employees would be notified of any changes. Furthermore, part of the HR manual on which the NAO sought to rely was not part of the employees' conditions of service and simply set out details of collective bargaining structures.  

In the second case decided this month in relation to contractual changes, Braithwaite and others v HCL Insurance BPO Services Limited the employer did not seek to rely on a variation clause but, instead, attempted to negotiate new terms as a part of a cost saving exercise.  When negotiations failed, the employer required employees to sign up to new terms or be dismissed.  The claimants refused; they were dismissed and brought claims for age discrimination. The employees argued that the requirement to sign up to new terms and conditions was a 'provision, criterion or practice' (PCP) under the Equality Act 2010.  The employees argued that this 'PCP'  had a greater impact on them as older workers, putting them at a substantial disadvantage, because they would suffer a greater loss than younger workers, given that they had built-up greater contractual entitlements by virtue of their long service. 
The EAT agreed that this was a PCP under the Equality Act but there was no age discrimination because the changes were objectively justified:

• the employer was suffering significant financial losses and needed to reduce staffing costs, which were running at 115% of revenue;
• the company did not need fewer employees, so redundancies were not an option; and
• there was no less discriminatory means by which cost reductions could be achieved. 

Therefore, although the contractual changes did put older workers at a disadvantage, the employer could show that they were a proportionate means of achieving the legitimate aim of reducing workforce costs. 

Accordingly, when implementing contractual changes, any potential discriminatory effect should be taken into account, usually as part of an equality impact assessment.  If a discriminatory effect is found, then that must be justified and alternatives should be considered.

In addition to the issues outlined in the cases described above, when contractual changes are proposed, the following will be relevant:

• potential claims for unfair dismissal / breach of the Acas code of practice on disciplinary and grievance procedures
• the impact of the Transfer of Undertakings Protection of Employment Regulations (TUPE), if changes are proposed in connection with a TUPE transfer
• collective consultation obligations under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992, if 20 or more employees are at risk of being dismissed within a period of 90 days or less
• information and consultation obligations
• collective bargaining arrangements – for example, there are restrictions in respect of giving incentives to staff to move to personal contracts where their terms and conditions are determined, to various extents, by collectively agreed terms.  This is an area in relation to which we have particular expertise and experience in advising public services clients on potential contractual flexibilities.

Finally, remember that any changes put in place need to be correctly recorded in writing, in accordance with section 4 of the Employment Rights Act 1996.