In a rapidly changing world, employers increasingly need to adapt their businesses.

This often results in employers needing to make changes to their employees’ terms and conditions of employment.  A change project - while often necessary, can be fraught with pitfalls.  Planning and identifying risks at an early stage is key.

There have been a number of high profile change projects in recent years covered in the press. The fall out from these has resulted in a new statutory code and promises for future change made by the new Labour government.

Below are ten top tips for employers to keep in mind when thinking about changing terms and conditions of employment for existing employees.

Tip 1 – Identify the contractual terms

The first thing to do is work out whether the term you want to change is contractual or not.

However, it’s not just the written contract which you need to look at. Side letters with bonus arrangements, policies, exchanges of emails and even WhatsApp messages can be evidence of a contractual term. The term doesn’t even need to be in writing to be a contractual term – there can be a verbal contract.

Also watch out for terms which are implied into the contract, for example through custom and practice. If your redundancy policy states that employees will get statutory redundancy pay but you have always paid an enhanced redundancy payment, then the chances are the enhanced payment has become a contractual term through custom and practice.

Some employees will have terms incorporated into their contract by for example a collective agreement.

Tip 2 – Check if the proposed change is already authorised by the contract

Some changes are easier to make as they are authorised by the contract already. This could arise by:

• Interpreting the term in the contract sufficiently broadly to accommodate the change which the employer is seeking to make.
• There might be an express right for the employer to make changes in that area. This might be because of a salary review clause for example.
• The contract could give the employer a general power to vary the terms of the contract. There are limitations on that type of clause though, and generally it is more difficult to rely upon this kind of power to make substantive changes.

Tip 3 – Watch out for legislation governing how to make the changes

Depending on what change you propose, there may be specific legislation to follow.

For example, since 6 April 2024 employees have had a day one right to make a request for flexible working under the statutory scheme. So if it is a flexible working request you should follow the statutory procedure laid out.

There are regulations dealing with pension reform which require employers to consult with both active and prospective scheme members and their representatives where particular changes are being made.

Making changes following a TUPE transfer can be complex. Any attempted variation to a transferring employee’s contract will be void if the sole or principal reason for the variation is the transfer. This makes harmonisation of terms after a TUPE transfer difficult. Changes are permitted where the sole or principal reason for the variation is what is known as an economic, technical or organisational reason entailing changes in the workforce. Changes which are allowed under the contract because of an existing clause in the contract are also permitted under TUPE.

Tip 4 – Meaningful consultation at an early stage can be helpful

An employment tribunal will expect to see that an employer has consulted meaningfully with employees before making a change. Where there are recognised trade unions then an employer will need to consult with them in accordance with any collective agreements.

However, many employers are wary about starting consultation unless employees are refusing to accept the change. The strategy and approach should be carefully considered at the beginning of the change project and reviewed as matters develop.

Explaining to employees the reason, exploring through consultation other less impactful changes, and looking at ways to sweeten the deal can help to get consent to the change. If employees are not going to accept the change then the level of consultation will become important in showing that as an employer you have acted reasonably.

Tip 5 – Consider express agreement v implied agreement to the change

A contractual change requires consent to be effective. This can be achieved in a number of ways. First is express agreement – this is where the employee agrees to the change. An obvious example of that is where an employer issues a new contract for signature and acceptance with a promotion.

Second is where an employer decides not to ask the employee to agree the change, but instead makes the change and relies on the employee continuing to work as acceptance of the change.

Courts are generally reluctant to find that an employee has consented to a contractual change in the absence of express agreement. This is particularly the case where the change has no immediate practical impact such as changes to benefits or sick pay.

Tip 6 – Careful risk assessment before you impose any change

Some employers will choose not to seek express agreement and instead to impose the change. This can result in agreement to the change with minimal fuss and the employees continuing to work. However, employees can refuse to accept the change and work ‘under protest’. They might bring a claim for unlawful deduction from wages or even unfair dismissal (even while continuing to remain employed under the new terms) or resign and claim constructive dismissal.

Your strategy and approach to change will depend on what kind of change you are proposing, the timing, the type of changes, how many people are affected, whether you can mitigate the impact and whether you have recognised trade unions. Early planning for different scenarios is key. You should take account of the risks of different approaches and the costs associated with each scenario.

Tip 7 – Dismissal and re-engagement while potentially lawful (for now) is a risky business

What can you do if you can’t get agreement despite your best efforts at consultation and exploring other options? The law does allow for this situation and this is where you can dismiss the employees under the old contract and immediately offer them re-engagement under the new contract.

This should be a last resort and shouldn’t be undertaken lightly. There is a risk of unfair dismissal claims, but these can be successfully defended if you follow the right process. There is also risk of industrial action or recognition requests, a detrimental impact on employee relations and negative publicity.

You should follow the Statutory Code when considering dismissal and re-engagement. The Code came into force on 18 July 2024 and sets out a process for an employer to follow where it is considering making changes to one or more of its employees’ contracts of employment. The steps can be summarised as:

• Information sharing.
• Meaningful consultation.
• Raising the prospect of dismissal and re-engagement.
• Re-examination of proposals by the employer. In the draft code this said the employer should re-examine its business strategy but this is not in the final version of the code.  The re-examination of plans should take account of feedback received from employees and representatives.
• Unilateral imposition of new terms.
• Dismissal and re-engagement.

The Code does not impose legal obligations but tribunals are required to take it into account when considering the award of compensation in relevant cases.

Watch out for further changes in this area. Labour initially said they would ban fire and rehire but seem to have rowed back from this a bit. The current position seems to be that Labour have said that they will strengthen the penalties in this area.

Tip 8 – Watch out for collective redundancy rules if proposing to dismiss

If you have decided you may need to move to dismiss and re-engage employees then it is likely that you have a proposal to dismiss under the collective redundancy rules. These are found in the Trade Union and Labour Relations (Consolidation) Act 1992. Please see here for more information.

If you are proposing to dismiss and re-engage 20 or more people within a period of 90 days at the same establishment then you will need to lodge an HR1 form and follow the collective redundancy consultation rules (and time periods) before those take effect.

If you fail to follow the collective redundancy rules then you lay the business open to protective award claims of up to 90 days’ gross pay per affected employee.

Tip 9 – Consider employee relations and industrial relations risks at an early stage

It is all too easy when you begin a change project to forget about the impact on employee relations– particularly if you are unable to convince employees of the pressing business need to make these changes. Change projects can damage morale and productivity if they are not handled in the right way, and can lead to grievances, claims, sickness and retention issues. Consultation can help identify risk areas with the changes proposed, help to explain why the changes are needed and give employees a voice. Being able to sweeten the deal and buy out terms that are changing can be a useful way of getting agreement to a new package of terms.

Where employers have recognised trade unions then discussions need to be had with them. If you can’t bring the unions with you on a change project, then you risk industrial action – from strikes to working to rule. You also risk collective claims and bad press. So meaningful consultation with the unions is important. Early contingency planning for strike action is important where changes are likely to be controversial.

We have also seen employers with no recognised trade union receive recognition requests during a change project, particularly where the employees feel that the employer is not listening to their concerns or suggestions.

Tip 10 – Get it right at the start – when drafting contracts, policies and side letters think about how you might change them if you need to

Think about whether you intend for a term to be contractual or not. Do you anticipate needing to change it in future and how would you go about that. Is there another way to approach the drafting to build in a mechanism for change?

If you are putting contractual terms in policies, make it clear which are contractual and that the rest are not.

Watch out for side letters and promises made by managers with no involvement from HR or legal. These can be binding and expensive. Ensure that managers know that they need to involve HR in these discussions.

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