An employer's guide to pensions

Contractual terms

In order to begin the process of changing a contract the employer must consider the following:

• Is there an express term (usually in writing) in the contract permitting the change?
• Is the changed permitted by an implied term of the contract?
• Is there evidence of custom and practice which may have become “contractual” over time?
• Is the change covered by a contractual term which is incorporated into the contract by law or as the result of a collective agreement?

Express terms

Express contractual terms can come from a variety of sources such as a statement of terms and conditions, advertisements, job descriptions, policies and procedures, staff handbooks, collective agreements and even offer letters or other correspondence. However it should be noted that  while some organisations will make their staff handbooks contractual, others will not. Some organisations will have incorporated collective agreements (and any subsequent changes) into the individual contract of employment, others will not. It is therefore important for any organisation looking to implement change to check the status of any documents that they may wish to rely on as giving flexibility to effect a change.

Express terms do not need to be in writing. They can be terms that have been orally agreed between the parties. However if the terms have only been orally agreed, then there is a difficulty evidencing the terms if there is any dispute.

Implied terms

Even if there is not an express term permitting the proposed change, there may be an implied term. For an organisation to rely on an implied term, it would need to show that it the term is necessary for the performance of the contact, or it was obvious that the parties intended such a term to apply. A term may also be implied by 'custom and practice' provided the term is reasonable and widely known within that particular organisation or industry. Given the difficulties of establishing that an implied term exists in the first place, it is advised that an organisation seeking to rely on an implied term to effect a change should take advice from their HR Rely advisor.

Terms incorporated by collective agreement

Where an organisation recognises a trade union for collective bargaining purposes, then there are likely to be collective agreements which deal with terms and conditions of employment.

For an employer to be able to rely on a clause in the collective agreement, or on any changes made by way of a collective agreement, the individual employment contract would have to specifically 'incorporate' the collective agreement, and any changes made to it. If there is no express incorporation then any clauses or changes to the collective agreement cannot be applied to the individual contract of employment.

For more information on express, implied and incorporated contractual terms please see our [Guide to Contracts]. 

Do we need to change the contract? 

Where an organisation is looking to make a change, the first question to ask is whether the change can be achieved within the scope of the existing contract i.e. without amending the contract. This might apply in the following situations:

• The existing clauses in the contract are wide enough to allow flexibility which will achieve the desired change. For example, job descriptions often contain a clause which state that the duties listed are not exhaustive and the employer can require the employee to undertake any duties in keeping with their skills and competencies.
• The clause contains a specific right for the employer to make certain changes. For example the contract might state that the employer can require the employee to change shift patterns or areas of work according to business needs.
• The contract itself might have an over-arching right to vary the terms contained within it.

However employers should be aware that even if these clauses exist the path to change can be difficult if any of the following apply:

• The terms are unclear and can be interpreted in different ways.
• The clauses are so wide and unfettered as to be unreasonable.
• The clause is so general as to be useful only for minor administrative changes.

Employment tribunals will not generally uphold ambiguous clauses in favour of the employer, unless very clear evidence of custom and practice is available, so care should be taken when drafting clauses where there is likely to be a need for amendment in the future. Similarly employment tribunals will be reluctant to allow employers to exercise discretion without limitation, and widely drafted clauses will be interpreted in a restrictive way.

Achieving change within the contract – communication and consultation

Having decided that change is possible within the current terms  of the contract, employers should nevertheless engage employees in a process of communication and consultation before exercising the change. Springing surprises on employees and expecting significant changes to working practices after a long period of working in a particular way, can cause ill feeling and lead to ongoing motivational issues. It could also give rise to a claim for constructive dismissal if the employee is able to argue that the way an organisation implemented the change was so unreasonable as to prompt him to resign. Even where change is permitted by the contract, any changes made must be reasonable and the employer must be careful not to breach the implied term of trust and confidence in applying the change.

Change can best be achieved smoothly by applying the following steps:

• Consult with your recognised trade union where applicable, or staff representative body if one exists, about changes that affect groups of people. Keeping representatives informed will assist when trying to gain the co-operation of individuals and will provide a sounding board for any problems that might arise. It will help to ensure that a consistent message is relayed to employees and that feedback is handled in a co-ordinated way.
• Consider the impact of the change you are proposing on the affected employees. Are there are any other ways of achieving the change which might have a lesser impact?
• Ensure that individuals know of the business reasons for the proposed changes. Try to be specific and avoid just using bland phrases such as “to save costs” or “to become more efficient”.
• Take time to consult with individuals affected where practicable so that they may raise questions and queries prior to the changes being implemented.
• Give some notice of the change taking place. Whilst you will not have to give statutory notice where changes are permitted under the contract it is reasonable to give some prior warning of implementing the change, particularly for example, if the change involves a change of shift pattern or working hours or a period of 'lay-off'. What amounts to 'reasonable notice' of the change will vary depending on the particular circumstances.
• Consider whether the changes, even where allowed in the contract, might adversely affect those with disabilities and what adjustments may be required to enable them to achieve the desired change.
• Consider whether the changes might adversely affect a particular group of employees who have another “protected characteristic” under the Equality Act 2010. For example shift pattern changes might potentially cause disproportionate difficulties to women, due to potential child care responsibilities or might adversely impact an employee's ability to observe their religion (e.g. by clashing with prayer times). An employer should only insist on the change for these employees if the change can be objectively justified. 

If an employee objects to the permitted change, they may of course register a grievance which may have to be heard before the change can be implemented. This will usually be the case where there is a recognised trade union that has the right under a collective agreement or disputes procedure, for the “status quo” to be maintained until the matter is resolved.

Achieving change to the contract where there is no right to the change

Assuming that you do not have the contractual right to impose the changes you are seeking, you will need to consider what alternatives are open to you and what steps you should take. Before embarking on a process of change, consider carefully how important the change is to the organisation and how far it is willing to go to implement the change. Ultimately it may be faced with dismissing and re-engaging employees to achieve a small change with little 'pay-back'. The process can be very protracted, particularly where large numbers of employees with long service are affected. Ensure that the end justifies the means. If at the outset it is likely that the organisation will seek to dismiss and re-engage if agreement cannot be reached, and if the number of affected employees who may be dismissed is 20 or more, then statutory collective consultation must be commenced.

Option one: reach agreement

If an organisation does not have the power within the contract to effect the changes, this does not mean change is not achievable. A contract of employment can be changed by both the employer and employee agreeing to the change. Alternatively, changes may be agreed by the employer and the recognised trade union, and recorded in a  collective agreement incorporated into the contract. 

To try to achieve change through agreement, follow the route outlined above for communicating and consulting with your employees. This will involve trying to “sell” the changes proposed, and looking at ways of making changes more palatable if they are likely to have a negative impact.

Additionally, in order to make a contractual change binding, even if agreed, there has to be some form of “consideration” or benefit to the employee in return for making the change. In many cases this may be the employee’s continued employment but, for other changes, particularly those which do not have an immediate effect (such as changes to termination provisions), some consideration will be necessary.

There are various ways of alleviating the impact of change, depending on the type change and how quickly an organisation is seeking to achieve it.

• For pay changes an organisation could look at offering a phased pay reduction, 'buy-out' of benefits, 'red-circling' (a form of pay protection) or swapping with benefits in kind.
• For changes in hours an organisation could consider phasing the changes in gradually, offering incentives such as shift premiums or unsocial hours’ payments.
• For location changes, an organisation could consider assistance with travel, changes to working times or interest free loans for rail tickets.
• For job changes an organisation could consider increases in pay, additional training and support, improved grading, or adding in additional benefits.

There are many more types of incentive and these could be discussed with your HR Rely Adviser to find a strategy that might work for your particular organisation. Of course if reducing cost is a factor the options may be more limited, but allowing employees to have input into in any changes proposed will ease the process.

If an organisation is successful in reaching agreement with its employee(s) it must ensure that the agreement is recorded in writing as oral agreements, whilst still valid, are harder to evidence at a later date. Typically an employer will write to the employee outlining what has been agreed and asking them to sign and return a copy document accepting the change LETTER SEEKING AGREEMENT TO CHANGE OF TERMS AND CONDITIONS. If the employee does not respond to the request to confirm their acceptance this should be followed up within a reasonable time frame. LETTER FOLLOW UP TO EMPLOYEES WHO HAVE NOT RESPONDED

If an organisation recognises a union for collective bargaining then, provided the individual contracts of employment of those in the bargaining group incorporate any changes to the collective agreement, the agreement reached between the employer and the union will be binding on those employees whether or not the employees themselves are members of the trade union. Again you should ensure that variations are clearly recorded in writing and signed by both parties where possible to avoid future dispute.

Option two: imposing change

If after your best efforts you cannot secure agreement to the proposed changes, you may impose change unilaterally and rely on the employee accepting the change without further objection. However, this is an approach that carries many risks.

This route is potentially problematic for an employer as an employee’s silence cannot be taken to mean that they have accepted the imposed changes. It may be a suitable route in some circumstances, where the impact of the change is negligible or doesn’t take immediate effect (such as removing long service holidays which only accrue at a later date). However in most cases the imposition of the change will amount to a breach of contract and the employee can respond in several ways:

1. Continue to work “under protest” and make a claim for unlawful deduction of wages.
   
   In this case the employee will need to make it clear that they do not accept the change, but they do not have to make continued protests or resign to make a claim. Case law has established that they would be entitled to claim for any losses suffered as a result of the breach providing they have not been found to have 'changed their mind' and accepted it. If they continue in employment for any length of time under the new regime this could adversely affect their claim. However, the employee may agree to a trial period and later reject the change, but again this must be within a reasonable time frame. (Breach of contract claims for a shortfall in wages may be brought in the county court where there is a substantially longer time period for bringing a claim.)
   
   
2. Resign and claim constructive unfair dismissal
   
   In order to make a claim the employee must establish that the change made amounts to a fundamental or “repudiatory” breach of the contract. This is where the employer’s actions indicate they no longer intend to be bound by the contract. Whether a breach is 'fundamental' will depend on the impact on the employee, for example a failure to pay at the agreed rate for the job or to provide other benefits which have a monetary value. In some cases the breach may not be monetary but will undermine the implied term of “trust and confidence”, for example the imposition of significant changes with no notice. Employees taking this course of action will need to show that the reason for their resignation was the breach and, again, they must not delay too long before making a claim as they may be deemed to have accepted the change.
   
   
3. Refuse to work under the new terms.
   
   Where the matter is in the control of the employee, such as working hours or practices, they may simply refuse to co-operate with the change. However this leaves the employer with the predicament of what to do with the employee. If you were to dismiss the employee then you may be liable for claims of unfair dismissal and/or wrongful dismissal (if no notice is given). On the other hand, retaining the employee in the workforce would clearly prove divisive and disruptive and the employer may be forced to follow Option 3 outlined below.

Imposing change may also carry the risk of claims of indirect discrimination if the new arrangements adversely affect an employee or groups of employees with any “protected characteristics” and the change cannot be justified.

Option three: give statutory notice to dismiss the employee and offer them re-engagement on new terms

This route is currently the only way to impose a change lawfully, although it still carries the risk of unfair dismissal claims. Therefore an organisation would need to be able to demonstrate that the dismissal was fair in all the circumstances. It is incumbent on an organisation to be able to show that not only was there a fair reason for the dismissal but that it acted reasonably in all the circumstances. The reason for a change in terms would normally fall within the category of “some other substantial reason” and the organisation would have to show that the reason was 'substantial' and more than just something that it would like to implement.

Acting 'reasonably in all the circumstances' will include the following key steps: 

• If the change affects 20 or more employees at an establishment then the proposal to dismiss will require a period of collective consultation akin to that required for making redundancies and an HR1 and formal announcement should be issued ANNOUNCEMENT – RESTRUCTURING/REORGANISATION. As with redundancies a period of 30 days collective consultation is required for proposed dismissals of 20 – 99 employees and 45 days for proposed dismissals of 100 or more employees. Similarly collective consultation must take place with the recognised trade union where applicable and/or elected staff representatives (see our guide to collective redundancies for more detailed information on the collective process GUIDE TO REDUNDANCY and LETTER TO TRADE UNION OR ELECTED REPRESENTATIVES AT THE START OF THE COLLECTIVE CONSULTATION PROCESS. (Note; although collective consultation may be required, dismissal and re-engagement does not constitute redundancy for redundancy payment purposes)
• Even if less than 20 employees are to be affected, it is good practice to consult with the recognised trade union or staff representatives and obtain the views of the employees.
• If having been through a communication and consultation process (and collective consultation period where applicable), no resolution has been found to getting the changes accepted on voluntary basis, the employer must seek the employee’s agreement to the change. This is assuming that the employer still has sound business reasons for the change. The employer must commence a period of individual consultation with each employee to try and obtain their agreement before issuing notices of termination. The process of consultation will be very similar to that used for redundancy dismissals – please refer to our consultation checklist as a guide CHANGING TERMS AND CONDITIONS CHECKLIST. You will need to advise employees that a possible route you are considering is that of terminating current contracts and re-engaging on new ones, but this should always be communicated as a last resort. Remember too that as the company is contemplating the terminating the employee’s contract all individual consultation meetings will be subject to the right to be accompanied by a trade union official or work colleague.

Before issuing notice you should ensure that each employee has had the opportunity to accept the changes and consultation is exhausted. Statutory notice of one week per year of service is required (unless the notice period provided in the contract is longer) with the employee working their notice giving them further opportunity to accept the change prior to termination. Example letters of termination are available LETTER TERMINATING CONTRACT OFFERING RE-ENGAGEMENT and LETTER TO EMPLOYEE CONFIRMING TERMINATION and LETTER TO EMPLOYEE FOLLOWING UP AFTER TERMINATION. The letter of termination should include an offer of the new contract to take effect immediately following the date of termination.

Any employee receiving notice of dismissal is entitled to a right of appeal and letters relating to this are available too: LETTER INVITING EMPLOYEE TO APPEAL HEARING and LETTERS GIVEN APPEAL OUTCOMES - TO UPHOLD THE DECISION TO TERMINATE OR REINSTATE.

Before deciding to dismiss, an employer should take into account how many employees have accepted the change. If most employees have accepted the change, this may support an argument that the change is reasonable. However if an individual has good reason for not accepting the change, it may be reasonable for the employer to consider whether it can accommodate this particular employee some other way especially if the employee has a disability.  If this is not possible, the employer should consider potential justification arguments, if discrimination may arise.

Changes in specific circumstances

Changes in connection with a business transfer or to an occupational pension scheme require special attention. If the employer is trying to make changes to employees’ contracts which they have inherited from their previous employer the changes will be void if they are connected to the transfer. In order to achieve a change the employer must have an “ETO” (economic, technical or organisational) reason entailing changes in the workforce. Separate advice should be sought from your HR Rely Advisor on this process TUPE GUIDANCE.

For changes to pension schemes, the employer may have to comply with the consultation provisions of the Pensions Act 2004 and again specialist advice should be sought on this process PENSIONS GUIDE.

Specific advice should also be taken if the organisation has an Information and Consultation agreement in place.