UK: Changing Terms And Conditions: A Question Of Balance

Last Updated: 14 November 2011
Article by Charlotte E. Walker-Osborn and Laura Friend

What? Slade v TNT [EAT/0113/11] considered the lawfulness and reasonableness of the employer's actions in attempting to change employment contracts by terminating existing contracts in accordance with their notice provisions and offer new, revised terms in their place.

So what? The above action was held to be fair. Encouragingly, tribunals are prepared to recognise the commercial realities and difficulties faced by employers.

When trying to achieve contractual changes to employment contracts, one option for employers facing a stalemate will be to engage in consultation over proposed changes, where possible seeking employee agreement, but to then terminate existing contracts in accordance with their notice provisions and offer new, revised terms in their place.

In the recent case of Slade v TNT [EAT/0113/11], a case in which Eversheds advised TNT and was involved from the outset, the actions of an employer embarking on this course were considered by the Employment Appeal Tribunal (EAT). The conclusions of the EAT provide useful insight for employers into the careful balance involved in such actions but also the relevance of broader commercial interests, particularly against the current financial backdrop.

Background

In the Slade case, the employer operated a contractual bonus scheme, which it wished to reduce. Negotiations with its employees regarding a revised scheme failed to reach agreement with a sizeable minority. Eventually, the employer gave formal notice to the staff, with a view to lawfully terminating their existing contracts but, at the same time, offering new contracts excluding the bonus provision. A number of employees claimed unfair dismissal. The EAT considered the lawfulness and reasonableness of the employer's actions in the context of ensuing unfair dismissal claims.

Termination of the employment contracts on notice was clearly, in legal terms, a "dismissal". The questions for the employment tribunal, therefore, were whether one of statutory reasons for dismissal applied (in this case, the relevant reason being "some other substantial reason") and whether the dismissals were fair in all the circumstances including the procedure adopted.

Reasonableness

The tribunal was satisfied that a potentially fair reason for dismissal was established (here, some other substantial reason). The tribunal then considered fairness, dependent upon:

"whether in the circumstances (including the size and administrative resources of the employer's undertaking) the employer acted reasonably or unreasonably in treating that reason as sufficient reason for dismissing the employee".

In addressing the overall fairness of the employer's actions, the tribunal acknowledged the importance of balancing the advantages to the business of the employer's course against the effects on the employees. The main focus nonetheless had to be the reasonableness of the employer. The EAT concluded that the dismissals were fair in all the circumstances, having satisfied itself that:

  • the reason for the dismissals had been substantial and was (or the business believed it to be) sound; and
  • the employer had endeavoured to negotiate with the staff and highlighted the implications of failure to agree.

Conclusion

The Slade case demonstrates that tribunals are prepared to recognise the commercial realities and difficulties faced by employers. Tribunals will certainly examine the reasoning of the employer, the way in which communications with the employees proceed and the course that employers then take in imposing the changes. None of these are to the exclusion of the effect upon the employees but it is clear that this is but one element of the balancing exercise involved in assessing reasonableness on the part of the employer.

Notwithstanding this case, employers must not forget that different circumstances will give rise to different issues and considerations. In particular, it will be important to take care following a TUPE transfer, where opportunity for contractual change is limited if connected with the transfer. It can also be difficult to determine whether changes to a job are effectively a redundancy or merely changes in terms and conditions of employment.

As a final word of caution, it is important to remember that, if an employer wants to change the terms and conditions of 20 or more employees, it may be necessary to consult with employee representatives and notify the Secretary of State.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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