Varying employee contracts: the law

Alison King looks at the legal position when it comes to varying employees’ contracts and what keys steps need to be taken

It’s an inevitability, particularly in the current climate, that a business may need to make changes and alter the terms of employee contracts. For example, some employers have had to make changes to workplace locations or altered working patterns to allow for flexible working.

There is a specific process that all employers must follow if they are looking to vary a contract.

Consult your employee

As an employer, if you’re making a change or variation to a contract, you need to consult with the employee to reach an agreement without having to impose the change. You can impose a change without agreement if there is appropriate justification, you have followed a fair procedure and the employee has been consulted. However, there are risks involved.

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Some employment contracts contain a clause which allows the terms and conditions to be varied. However, this doesn’t give you, the employer, the right to make any changes you wish. Employees will still need full consultation, and you will need to show a clear business case for proposing the change and that you have taken the employee’s views into consideration.

If you can’t reach a voluntary agreement, it may be necessary for you to dismiss the employee and offer to re-engage them on the new terms and conditions. If you’re doing this with 20 or more employees, and plan to dismiss them and re-engage on new contracts, then you must collectively consult with employee representatives.

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3 steps to follow

To vary the contracts of employment, you must follow these steps:

#1 – Consult with employees

If you know that change is likely to be met with resistance, it’s essential that you consult with employees. Start off by making the business case for the change and demonstrate valid reasons for it. Highlight the benefits for employees (as well as the business) and allow them time to digest the discussion and to respond. This may have to take place over a number of meetings.

  • Listen to any objections or alternatives suggested by employees
  • Try to reach a collective agreement
  • Take notes and keep them of all meetings and any copies of communication exchanged
  • Allow them to have a companion present at the meetings

If you follow this step and reach agreement, then skip forward to step 3.

#2 – Dismissal and re-employment

If step 1 fails and you’re unable to reach agreement, then you can impose the change. To do this you will need to terminate the existing employment contract following the process below. You must make sure that you treat employees fairly and consistently throughout to avoid any future tribunal claims.

  • Provide the reasons for the proposed dismissal in writing to the employee
  • Invite them to attend a meeting to discuss (you should give them at least 48 hours’ notice so that they have time to prepare). They can bring a colleague or trade union representative
  • Chair the meeting along with a colleague who can take notes
  • If the employee can’t attend the meeting, then you must give them the opportunity to re-arrange within five working days

If you decide to terminate the contract to impose the changes, you must inform the employee of the decision, of their right to appeal and confirm this in writing. Your employee can appeal this, and if this happens then you should invite them to an appeal hearing.

The employee must be given the correct amount of notice of termination (either contractual or statutory) – basically whichever is the greatest. This needs to be confirmed in writing. If you’re dismissing the employee and re-engaging or reinstating on appeal, then their continuity of employment is preserved.

#3 – Issue a new contract

A new contract should be issued at the start of the process for the employee to consider.

The employee then has two options:

  • If the employee accepts: their employment will continue with the new terms. Confirm this in writing with a signature on the new contract
  • If they reject it: their employment will terminate at the end of the notice period. Be aware that they could bring a claim against you for unfair dismissal. However, if you have followed a fair procedure and can demonstrate that the change was necessary for the business, an employment tribunal may find that the dismissal was fair. Even if it’s found not to be fair, you can argue that by refusing the offer, the employee has failed to mitigate any losses which were incurred as a result of their dismissal and that any compensation should be correspondingly reduced

Alison King is managing director at Bespoke HR

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Alison King

Alison King

Alison King is managing director at Bespoke HR.

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