Changing a contract of employment

Sarah Guthrie: Welcome to the Acas podcast. We're talking today about changing an employment contract with Acas advisers, Helen Robinson and Mark Makin, and I'm Sarah Guthrie. This is topical at the moment because lots of employers are looking at changing contracts as an alternative to making people redundant. So employers are asking, how can we do that? And members of staff might be asking us, can my employer do this? So Helen, let's start off with employers. What's the best way of going about changing an employment contract?

Helen Robinson: There's a number of different ways that an employer can consider changing somebody's contract or varying the terms and conditions. But I think the best way, from an Acas perspective, would be where possible to do so by agreement. If an employer speaks to a member of staff, and they are able to get their agreement to make a change to their terms and conditions, then ultimately that is going to be the best way for conducive working relationship moving forward.

Mark Makin: To echo what Helen said there, taking the workforce with you – informing, explaining, consulting, discussing, providing feedback – that sets the tone for the relationship once the change comes into effect, because the trust and the goodwill will need to be there to take the organisation forward afterwards. And if we make changes without agreements, there's a big possibility that that trust and goodwill won't be there, which is going to create problems with itself.

Helen: Building on that, I mean, what some employers are choosing to do is to see whether they can make these changes on a temporary basis because staff might be more willing or accepting to the changes there. And I've also spoken to an employer recently who has offered an incentive so the change that they were looking at making was a 10% pay cut and that was across the board 10% pay cut for all staff. That was a measure to look at avoiding redundancy. And what the employer said almost as an incentive was that if this didn't work, and if actually they did need to make any redundancies within the next 12 months, their redundancy pay and their notice pay would be calculated at their original wage so that the wage that was slightly higher, and so that was something that went some way for staff agreeing to that change.

Sarah: Yeah, I can see why that would really help because we've heard stories of people who have agreed to a pay cap with a perception that then they won't be made redundant and get made redundant and then also have their redundancies as calculated on their most recent pay, which is half of what they were being paid. So I guess it, it sounds like thinking through in detail how your staff will respond to the changes you're proposing both in the short term and the long term is really important here.

Some people listening to this podcast might be thinking, well, can employers change a contract? What are my rights? I wondered if you could give us an insight into that.

Helen: If a member of staff agrees to a change, then absolutely a change can be made to that contract, whether it's on a temporary or a permanent basis. I think it's very, very important when we're looking at agreements and agreeing to a change that an employer is very open and honest about what this change is going to be. How long is it going to last for? Is it going to be permanent? Because employees need to have that information so that they can make an informed decision about whether they are happy to agree. But I also think it's equally if not more important for employers to be open about the reason behind the change. Because if they approach their staff and they speak about ok – we will use the 10% pay cut as an example – we're looking at giving you a 10% pay cut, if that's all the information that staff have, then it's highly unlikely that they're going to be happy about that or agree to it. Whereas if an employer approaches staff and says, ok, look, we're looking at a 10% pay cut and the reasons are because x y z, people still may not be happy about it, but they might be more likely to respond to that and say ok yeah, I can understand the reasons why. And yes, I will accept that change.

Sarah: So keeping very clear communication around the reason why and also how long it's likely to be for and what the long term consequences of that might be. And, Mark, what have you seen from employers about good practice in this area?

Mark: I think it is the communication as early as possible, as open and transparent as possible. And it's two way. Feedback is given. I think that's something that is often missed in this type of process, where the employer may well go into this type of situation. And they will listen to what people have to say, but they don't provide the feedback. And the feedback may be that was a great idea. But we can't do it, because… In some cases, it may be that's a great idea we haven't thought about it. Let's discuss in some more detail how we might be able to implement that.

Helen: Just remember that if you are looking at changing the contract of 20 or more people, there are additional consultation requirements on you, and that you would need to collectively consult. That would mean either involving trade union representatives if you recognise a trade union, or giving staff the opportunity to appoint employee representatives to almost act as a go between and have conversations with employer and staff themselves.

Sarah: And that two-way communication is very different at the moment for most workplaces than what we would have encountered in the past. Do you have any insight into the challenges of doing this remotely and how people have been overcoming them?

Helen: I think there are, as you say, added challenges. And I think sometimes it's very important for employers to remember that, actually, people have got other stuff going on at home at the moment. Yes, they may be working from home. But it might be that they need to schedule a specific time to have important conversations such as these when I don't know if they've not got children at home or the partner is able to look after children at that particular point or other caring responsibilities. So being very, very clear about what's going to be spoken about in a specific meeting or specific virtual meeting. But making sure that that person is in the right frame of mind with minimal distractions to have this conversation because it is an important conversation.

Just because people are working remotely or we may have people on furlough that we need to speak to, there still needs to be a good level of communication. And what I mean by that is not just an email chain, it's a conversation that would usually be had and it should be a conversation, have it as a conversation, whether it's a video call, whether it's a telephone conversation, not just an email to all and saying this is happening or we're proposing this. Have a conversation.

Sarah: So you mentioned Mark that one of the things people often miss is the two way feedback and the need for that. What other mistakes have you seen employers making? And why do you think those mistakes are being made.

Mark: There's sometimes an assumption that I've made this decision for the good of the business, so people will automatically accept that it's the right decision. So one of the mistakes that is often made is that communication, early communication doesn't take place. A decision has already been made, and the employer presents it to the staff almost as a fait accompli, and then is shocked and surprised when they get objections to that, or when people have concerns about it. Or when there is a long list of questions about well, how will this impact me? What does this mean for me? When is it going to happen? It's almost like the employer sometimes jumps the gun and makes the decisions for good reasons, but misses out that communication stage, that consultation stage.

Sarah: One thing that's really struck me about doing this process well is that it can take quite a lot of time. And I wondered what you would say to somebody who's thinking, well, that all sounds great but I don't have time to do this.

Mark: Ultimately, the decision is the employers. But the conversation that I would have with them would be centred around not just the legal risks that they might face if they get this wrong – so there might be breach of contract claims, there might be constructive dismissal claims, there might be claims centred around the failure to consult properly if they are in a collective situation. But I'd also talk about some of the less obvious risks, the impact on your workforce, in terms of morale and motivation, the goodwill and that trust and confidence that needs to exist between the employer and the workforce in order for them to function properly.

Sarah: And so what rights do you have as a member of staff who's going through this process? Perhaps there's been a proposed change, perhaps your employer has or hasn't handled it well? Could you just talk us through what rights you have?

Helen: It's not an uncommon question from an employee to say, okay, well, you're talking about agreement to change, but actually, I don't want to agree to it for whatever reason, and it may be that an employer has done absolutely everything that Mark and I have spoken about. They've consulted, they discussed, they've been very open about the reason behind this change, but the change doesn't suit the member of staff and that is a real-life situation. I think in all circumstances, there's absolutely no obligation on a member of staff to agree to a change. But I do think it's worth being aware that ultimately, if they don't agree to change, there are other options that are available to their employer. For example, if an employer feels that they've got absolutely no option but to make this change, and their business may go under otherwise, for example, then they do have the option of actually ending the existing contracts by giving notice and then re-engaging their staff at the end of that notice period on new contracts. What I would say is that it's not a risk-free thing for an employer to do. It is still technically a dismissal, you are dismissing somebody from their existing role, from their existing contract. And with that in mind, an individual would have the option, if they chose to, to appeal against the decision. They'd also potentially have the option of actually treating that notice as notice of dismissal. And if they felt it was unfair, and they weren't engaged in the new contract, they could potentially look at making a complaint to an employment tribunal around that. So it's not risk free for an employer. It's an option but it's not a risk free one.

Mark: As well as the agreement route to vary a contract, and the dismissal and reengagement route to varying contracts, some employers already have flexibility clauses built in to their contracts, which they can invoke. Just a word of caution around flexibility clauses: they do need to be well written, they need to be quite specific, and they need to be reasonable in order for them to stand up and be operative. And you usually find them around place of work, job role, job function, hours of work. Even if flexibility clauses already exist in a contract, before invoking them, I think it's good practice for the employer to speak to staff and explain the circumstances are such that they feel they need to invoke the clause, here's the reason why I feel a need to involve the clause and here's the fine detail about when and how and what it might mean for you. But then leave the door open for the staff to come back with questions, concerns and objections or other suggestions and ideas.

There is another option, unilateral variation, which involves the employer simply making the change and imposing it on employees. But it is fraught with risk and it should be only used as a very, very last resort. It opens the door to legal challenges, it doesn't go down well with the workforce, it will damage goodwill, it will remove any discretionary behaviour that might have been there previously, and it just doesn't make for good employment relations as well as the big legal risks that come along with imposing changes on your workforce.

Helen: And I think if I if I just add to that, I did some work with an organisation last year – so we're talking pre COVID, pre pandemic. And the employer had done exactly this, they had basically informed all of their workforce that as of next week, they were going from a five day to a four-day working week, and the pay cut that that attracted as well. Now as Mark said, they lost a lot of goodwill from their staff with that, but what also happened was they lost, within about the following month, four members of staff left and went working for another organisation. But what had actually happened, these four particular members of staff were quite specialist, so they had to be replaced. So there's all these then additional costs that the employer’s got of losing experienced, knowledgeable members of staff, and then having to go through recruitment again to replace them when they were already struggling with money, which is why this going to four day working week had come in in the first place.

Mark: And I can see in a situation like that Helen where, if the employer had spoken to people in advance, early, been open about the need to make the change, staff may well have agreed to that once they understood the full picture.

Helen: Absolutely, yeah. And I think, the employer in this particular circumstance, had done exactly what we were talking about earlier, had fallen into one of those traps where they felt they had consulted because they themselves had thought about all these different measures or different ways and come up with the solution. But they'd done it on their own. They hadn't involved their staff during that thought process.

Sarah: I'm just thinking of people who are listening to this and thinking my employer is not doing this well. They haven't consulted very well. They haven't listened to that feedback. What would you advise someone in that position about how they can help their whole workplace go through this process more smoothly?

Helen: I think in the first instance, and this would be true of any concern that any member of staff has within a workplace, we would be advising them to raise that and to raise that internally. I think it's very important for both employers and members of staff to see whether a situation can be resolved internally before they think, ok, well, is there any sort of external complaint I could make? And part of the reason for that is something that Mark mentioned earlier on, it's about the fact that hopefully, a working relationship is going to continue. And the more that that can be resolved internally, and informally wherever possible, the more likely it is that that working relationship will continue and will continue to be positive.

Sarah: Thanks. That's been really helpful. I wondered if you could leave us with a key insight that you've had during your work on this topic.

Helen: The key thing – and Mark and I have referenced this throughout our conversation today – is to communicate and to communicate as early as possible.

Mark: And to keep communicating. I've seen situations, certainly in collective situations where there are laid down consultation periods that the employer must observe. But I've seen situations where we get to the end of that 30 days or 45 days, depending on the numbers, and the employer decides that's it job done, when it would have made so much more difference if they just kept that talking, that communication going for a few more days, because they were making progress, things were developing yet, they'd come to the end of the statutory consultation period, and they felt that's it, that's the green light to move ahead now. So don't be bound by any limits. If things are moving ahead, if progress is being made, keep talking.

Helen: Absolutely. Yeah.

Sarah: It's a great thing to remember for all workplace relationships, not just varying a contract, changing your contract. And so thanks very much for your insight today.

Helen: Thank you.

Mark: Ok.

Sarah: You've been listening to the Acas podcast. You can find full details about what you need to know about changing an employment contract on our website at www.acas.org.uk. Thanks for listening.