Birketts LLP Early Bird Workshop

Changing terms and conditions of employment contracts

Legal Update

Some relevant case law

Disciplinary and grievance appealsSamuel Smith Old Brewery v Marshall and another

• The employees (pub managers) raised a grievance in response to the brewery requiring them to reduce additional staffing hours. The grievance was not upheld and the employees appealed.

• The employees refused to impose the reduction on their staff – the brewery held a disciplinary hearing and dismissed the employees.

• The employees argued it was necessary to conclude the grievance procedure before starting disciplinary procedures.

• The EAT held it was not necessary to conclude the entire grievance process before conducting the disciplinary hearing and therefore the dismissal was not unfair.

Constructive dismissalMunchkins Restaurant Ltd v Karmazyn and others

• Four female waitresses alleged that throughout their employment at Munchkins Restaurant, Mr Moss, the controlling shareholder, made them wear short skirts and subjected them to talk of a sexual nature. The claimants had been employed for one – five years.

• The women brought claims for sexual harassment and constructive dismissal.

• On appeal it was argued that there were no grounds for constructive dismissal as the claimants had put up with the ‘intolerable’ behaviour for several years. The EAT commented that ‘putting up with it’ does not make it welcome, and upheld the award of £15,000 to each claimant, making Mr Moss and the company jointly and severably liable.

• This case casts doubt on the principle that the employee must always act quickly in response to a breach or be taken to have affirmed the contract.

Sickness absenceRawlings v The Direct Garage Door Company Ltd

• Mr Rawlings was employed by the Direct Garage Door Company (DGD). He was absent due to illness throughout 2004 and 2005, until 5 April 2006 when his employment was terminated.

• DGD’s holiday year ran from 1 January to 31 December. In December 2004, Mr Rawlings informed DGD that he would like to take his statutory holiday from 2 December 2004 – 30 December 2004. DGD paid Mr Rawlings holiday pay.

• In 2005, Mr Rawlings asked near the end of December where his holiday pay was, but did not seek to take any. Mr Rawlings made a claim for unlawful deduction from wages.

• Mr Rawling’s claim succeeded, following the cases of Stringer and Pereda.

• Tribunals may give effect to the right for those on sick leave to defer holiday/holiday pay.

Date of termination of employmentGeys v Societe Generale, London Branch

• Mr Geys was told by Societe Generale that he was summarily dismissed on 29 November 2007. Payment in lieu of notice was paid into his account on 18 December 2007, without Mr Geys’ knowledge. Termination was not deemed to have taken effect until 6 January 2008, when My Geys received a letter confirming he had been paid in lieu of notice.

• The contract continued until the employer unequivocally communicated its decision to exercise its contractual right to summarily terminate by making a payment in lieu of notice.

• Important for employers to make it clear that they are exercising their contractual right to pay in lieu of notice.

Changing terms and conditions of

employment contracts

Why change contract terms?

• Harmonise terms and conditions

• Business needs resulting from economic circumstances

• Changes to the law

• Other reasons…

Action prior to changing terms

• Is the change contractual?

• Do you have the power to change?

• Is there a redundancy situation?

• Is this a TUPE situation?

• How fundamental is the change?

• What are the legal, HR and industrial consequences?

• Consider business need v detriment to the employee

• What is the good business reason?

• Decide on a fair procedure of consultation for the change

How to make changes

1) Consent

2) Under an existing contractual provision

3) With Trade Union agreement (collectively agreed terms only)

4) Unilateral imposition of the term

5) Termination of employment contract and re-engagement

1. Consent

• Express– Obtain agreement from employees/union to changes

– Document agreement

• Implied– After unilateral imposition

– After how long is consent implied?

– Consider:

• Nature of change

• Employee understanding

• Is the effect long term or immediate?

• Protest?

• Length of service

• Acceptance by conduct

2. Contract allows variation

• Is the change covered by the term in the contract?– Express right

– General power

– Broad interpretation of an existing contractual term

• On exercise, avoid breaching an implied term of the contract such as mutual trust and confidence

• Bateman & others v Asda Stores Ltd – flexibility clauses

3. Trade union agreement

• Trade union acts as an agent for the employee (rare)

• More commonly:

– There is an express or implied term in the employee’s contract which states the collective agreements made between the union and the employer are incorporated

– Employee is therefore bound by any terms negotiated between the union and the employer

– It is irrelevant whether the employee is a member of the trade union

Case Study 1

4. Unilateral imposition of the change

• Employee may accept – consenting expressly or impliedly; or

• Resign and sue for constructive unfair dismissal; or

• Stay under protest, refusing to accept the change.

• Possible claims:– Breach of contract

– Unlawful deduction from wages

– Unfair dismissal

– Indirect discrimination

5. Terminate the contract and re-engage on new terms

• Risk of claims for:– Unfair dismissal

– Wrongful dismissal

– Indirect discrimination

• In order to avoid unfair dismissal, employer must have ‘Some Other Substantial Reason’ for the dismissal.

– A sound business reason for the change

– Weigh advantage to business against the detriment to the employee

Procedure to alter terms

• If over 20 employees - collective consultation as per mass redundancy

• Give adequate warning of changes

• Full details of nature, timing, and reasons for changes – consult!

• Present employees with proposed contract

• Listen to feedback– Note objections to change and reasons– Respond to objections

• Set deadline for agreement

Options when facing opposition

• Back off and allow them to continue on their current terms

• Impose unilaterally

• Dismiss and re-engage – restore order and effect the change

• Compromise

Case Study 2

Flexibility Clauses

• Allow an employer to alter the terms of his employee’s contracts

• Useful to afford flexibility to a business and avoid disputes

• Can be specific, e.g. express right to change an employee’s place of work

• May be more general, seeking to permit various future changes to the contract

• Previously, general, non-specific clauses could not be relied upon. Recent change in the law increasing the scope…

Flexibility Clauses

• Bateman and others v Asda Stores Ltd

• 8,700 of Asda’s employees objected to a change in pay structure

• Asda had a clause in its staff handbook (expressed to form part of the contract) allowing it to:

‘review, revise, amend or replace the contents of this handbook, and introduce new policies from time to time reflecting the changing needs of the business’

• The EAT held that Asda was entitled to rely on that clause in order to change the terms of the contracts

• Can rely on an unambiguous unilateral variation clause to vary contracts.

Flexibility Clause

• To use a clause permitting changes to employment contracts:– The clause must be clear and unambiguous– The employer must comply with the terms of the clause– The employer must act reasonably in altering the terms (not capriciously)– The employer must not breach the implied term of trust and confidence:

• Consultation with employees

Case Study 3

Birketts LLP Early Bird Workshop

Changing terms and conditions of employment contracts