Contracts are the bedrock of all working professional relationships, whether between a client and an employer, or an employee and employer.
Why managers and managing directors need to know about changing contracts:
While an employee’s contract will, in all likelihood, be based upon established contractual protocol, implementing managers need an intimate knowledge of all of the contract’s contents and how they will affect the employee in question.
When the time comes to change a contract, managers and managing directors alike must be fully aware of how the process plays out in a way that keeps employers, and the law, happy; altering contracts, however justifiable, can result in a veritable minefield for employers and it cannot be certain that a tribunal or court will uphold clauses in place that are expected to grant discretion.
The ever-changing contractual landscape
A contract of employment between an employee and employer is a legal agreement. Its details, however minor, cannot be altered or varied by an employer without the authorization of the employee or even their trade union.
Changes may need to be made in reaction to economic circumstance or business reorganization resulting in a need to alter contracted hours or pay. On the other hand, an employee might request to make a change to their holiday allowances, or address their pay as a result of aspirations or changes to their domestic situation.
A contract of employment can be altered only with the agreement of both parties. When any change to a contract of employment is actioned, employers are required to give written notification of the variations within a month of the changes being agreed and put in place.
The following three concerns are fundamental to many contractual changes:
- The legal compliance if an employer wants to change an employee's contract
- How to ensure employers get the employees’ proper consent to the change(s)
- How changes in contracts to an employee are communicated
An employment contract change cannot be implemented if the employee is not in agreement with the alterations and if the proposed change is significant.
Sometimes approval can be obtained through a collective agreement, which is legally binding for the employees concerned. But otherwise you need the employee’s explicit agreement. This does not have to be in writing but, to avoid potential disputes it is always wise that it is.
Some employers offer reasons and incentives to inspire their employees to approve to the change(s).
Dismissing an employee who objects to a change
If an agreement cannot be reached, an employer can terminate the existing contract and offer continued employment on new contract terms. Employers must be mindful however that termination of the prevailing contract will comprise a dismissal in law which can potentially result in an unfair dismissal claim if they have been with the business for 2 years or more.
The fairness of the dismissal will be dependent on why the contract changes were needed.
Typically, employers will rely on the potentially fair reason known as ‘some other substantial reason’, or SOSR for short. Unfair dismissal law allows ‘some other substantial reason’ to provide a general residual category of reasons for the dismissal and was not to be restricted to reasons of like category specified in what is now S.98.
As long as the employer has a strong case for terminating an employee’s contract who declines to consent to a change, it should be able to establish SOSR. It is important to note however that a tribunal would always assume there to have been a consultation and an effort to come to an agreement beforehand.
If an employer has managed to reach an agreement with the employee by consultation or negotiation, the Labor Relations Agency advise that written notification of the process as it happens and the agreed change is communicated and provided to all employees.
Acas advise that ‘variations to the contract can be agreed verbally or in writing’ but that it is better for any established changes to be logged in writing. The Labor Relations Agency advise employers that it is best practice to communicate changes in writing in a timely fashion, certainly ‘no later than one month after the change is made’.
Despite the information given within this article, it is strongly advised that any employer looking to implement contractual changes with staff should seek case-specific advice from an appropriately placed lawyer.
Employment law is ever-changing and coupled with a 'growing awareness by employees of their legal rights and an increasingly litigious society', employment law is increasingly difficult for HR professionals and departments to stay abreast of. It is therefore essential that businesses keep themselves current on developments in contract law to avoid future issues.
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