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How to approach Contractual Variations

Where an employer needs to achieve contractual variations, whether in the normal course of business or due to Covid-19, there are three main elements of the process which must be given particular consideration if the employer is to achieve its aim.  These are preparation, communication and the mechanics of making the variation, the importance of which cannot be overstated.

Our FAQs are for general guidance only, and do not constitute and should not be relied upon, as legal advice. Every business and challenge is different. If you are an employer and your business needs specific support and advice for your unique context please contact us at legal@lexleyton.co.uk

Last update: 12/08/2020 – 16.10

Employers should start by assessing the reason for the variations – currently likely to be the threat to the business from Coronavirus – and establish what level of variation is required.  Taking salary reductions as an example, it would be prudent for finance and HR departments to work together to assess what level of savings the company must achieve and then model the most appropriate way to achieve that within the required timescales. In doing so, businesses should be mindful of the possibility of using flexible furlough.

It is also sensible to review contracts of employment (and, where appropriate, any collective agreements) in order to assess whether these provide a mechanism for variation.  This will inform the process that will need to be undertaken and the relevant timescales.

Employers must give considerable thought to the process that they will follow in order to give the best chance of agreeing variations quickly and with minimal negativity from employees.  Consultations may be with employees directly or with a body which is recognised for the purposes of consultation on terms and conditions, such as a Trade Union or works council.  We consider here how an employer without such a recognised body might consult:

Consultation will tend to involve an initial announcement of the proposal to the affected employees, with a deadline for employees to respond with any questions or concerns about the proposal.  If there are no concerns raised an employer can often move quickly to put the variation in place.  However, it is likely that most contractual variations will lead to some employee concerns.  Where such concerns are raised, employers should engage with these issues, investigate them and respond to the affected employees.

It may be that concerns or suggestions cause an employer to reconsider their proposal.  Employees can often bring forward useful suggestions and alternative approaches.  Where this is the case, it is useful to give credit for this and show the business’ willingness to engage.

It is also prudent to review contracts of employment (and, where appropriate, any collective agreements) in order to assess whether these provide a mechanism for variation.  This will inform the process that will need to be undertaken and the relevant timescales.

The ways in which employers communicated difficult decisions at the point of lockdown featured heavily on social media and did considerable damage to those companies who failed to communicate in a humane way with their workers.  Those who engaged with their workers found a much higher degree of engagement and willingness to suffer short-term pain for long-term job security.

There is often a degree of cynicism from employees towards employers and vice-versa.  When difficult decisions, such as pay cuts or redundancies, have to be made employees frequently question their employers’ motives.  However, there is no such issue in the present circumstances – employees are perfectly aware of the immense financial pressures on businesses due to Coronavirus and therefore employers’ concerns are seen as authentic.

There is little to be lost and much to be gained from being transparent and open with employees about current business pressures.  Where employees can see the financial peril (and consequent risk to jobs) caused by Coronavirus, they are more likely to see potential short-term variations for what they are – an alternative to redundancies or business closure.  There is a definite feeling that everyone is ‘in it together’ and this can be of use to employers in obtaining agreement to variations.  On the whole, employees are aware that these are extraordinary times.

In summary, clear and open dialogue with employees which takes a consultative approach is likely to give the best chance of succeeding in putting in place contractual variations with the least risk, negative feeling and opportunity cost.

Rules governing contracts tend to be found in contracts themselves.  During the preparatory stage, employers should have reviewed contracts of employment and ancillary documents to find what rights had been reserved and any processes which had been agreed.  These will set out the general mechanics of the process and should, generally, be followed.

Contracts of employment tend to contain either or both of two types of variation clause – specific or general.

A specific variation clause states exactly how that clause might be varied in future. A classic example would be an ‘hours of work’ clause. These hours tend to set out a working pattern, but will often also set out how this might be varied , for example due to the needs of the business from time to time.

Such a clause reserves specific power for an employer to vary hours of work. Where this kind of clause exists, consultation is usually straightforward as the act of consultation itself is more of a gesture of goodwill and prudent for employee relations. If an agreement was not reached through consultation, the employer may simply look to rely on the wording agreed in the contract of employment and enforce the change.  Clearly such an approach would be more controversial in the case of a unilateral salary cut and employers would be unlikely to want to force this on employees unilaterally.

A general variation clause is seen in most contracts of employment. They are rarely enforceable, as they tend to be viewed by courts as being insufficiently specific.  While these clauses are useful in regulating minor and uncontroversial variations, employers would be unwise to rely on it in order to reduce salary on one month’s notice.  As such, in all circumstances the best mechanism for obtaining agreement for a variation of a contract of employment is to consult openly with affected employees.

CHANGING HOURS AND PAY

It is important that employers remember that, before anything else, a frank conversation about the state of the business with their employees can go a long way. Employers should explain that the proposed changes are the only option in order to prevent redundancies or the closure of the business. In these difficult times, employees are likely to understand the situation and agree to those changes. An employee can voluntarily have their hours reduced but this must be recorded in writing after consultation between them and their manager. Employees are likely to be agreeable to such a possibility if they know it will prevent a later need for redundancies. The need for this was reduced by the creation of furlough leave, but as the Government’s furlough scheme draws to a close in October 2020 it may be that employers will have to address again this shortly.

This is possible, but would require an employee’s consent. If an employee is provided fewer days of work without their consent, they should be paid full pay – this rather defeats the purpose of the arrangement. Accordingly, consent should always be obtained before putting such an arrangement in place. Employees may agree to this where the alternative is potential redundancy.

An employer may look to make changes to an employee’s contract of employment in the following circumstances:

  • The employee consents to the change:
    Employers could seek the written consent of the relevant employees to the contractual change. While normally employees are unlikely to agree to a change in terms that is not in their favour, they may be willing to do so where their agreement may help the employer stay in business.
  • The employee is dismissed and re-engaged:
    Where employees are unwilling to consent to a change in their contractual sick pay entitlement, an employer can consider dismissing them and offering them re-engagement on the revised terms. Even if the affected employees accept the new terms, they could be entitled to claim unfair dismissal in respect of the termination (assuming they have the requisite length of service) and wrongful dismissal, if the employer does not give them the required notice to terminate.
  • The employer unilaterally imposes the changes:
    Employees may respond to a change that is unilaterally imposed on them in a number of ways. They may ‘work under protest’ and bring claims for breach of contract or unlawful deductions from wages.  Alternatively, they may resign and claim constructive dismissal.  Of course, they may also do nothing and work as normal, having acquiesced to the changes.

 

If an employer wishes to vary the contracts of employees, and it intends to dismiss employees who do not consent to the change in their terms, those employees will be classed as dismissed by reason of redundancy.  This may lead to consultation obligations – if this is a possibility, please discuss this with your LexLeyton Employment Solicitor.

STOPPING EMPLOYEES FROM WORKING

Yes – this is possible, although it tends to be unpopular. Employers must give notice of at least twice the amount of annual leave that is being enforced. For example, if an employer requires an employee to take one week’s annual leave at a particular time, it must give them at least two weeks’ advance notice.

Where employees take a large amount of annual leave early in the leave year, employers should take into account the risk of employees resigning shortly after receiving holiday pay. The process of clawing this back can be a long one.

Yes, but only days that are given in addition to the statutory minimum holidays. Workers are entitled to a minimum of 5.6 weeks annual leave per year. Annual leave in excess of that could potentially be brought forward.

Yes – annual leave continues to accrue while an employee remains employed.

They are both contractual and temporary solutions that can be used instead of redundancies.  The ideal situation is for all contracts of employment to contain lay-off and short-time working clauses, which can be relied on in difficult times.  If there are no such clauses, agreement should be obtained from employees.

Employees who are laid off are eligible for a small Guarantee Payment, but this is limited to a maximum of £150 over three months.

In the current situation, if workplaces are forced to close to prevent the spread of the coronavirus (COVID-19) virus, employers will still have to pay employees in most cases. Lay-offs and short-time working may give employers greater flexibility and savings on salaries during a temporary closure but employers can only implement lay-offs or short-time working if there are express, correctly drafted clauses in their contracts of employment or if they receive employee consent. Clauses should reserve the right to reduce pay according to the reduction of work. Employees may agree to this if they feel their only alternative may be redundancy.

The existence of furlough leave and pay is likely to have reduced the need for and popularity of lay-off, (especially where no lay-off clause exists) but it remains a possibility as an alternative to redundancy and may be popular with employers as the furlough scheme is scaled back and employer contributions increase.

Please download our full guidance on implementing contractual variations which includes detailed examples of how to navigate the different scenarios and types of clause.

Where employers have the right to enforce lay-off, there is no need to consult on this (either collectively or individually).

Yes – although for lay-off to apply, there should be no provision of work in any day of lay-off.

Please download our full guidance on implementing contractual variations which includes detailed examples of how to navigate the different scenarios and types of clause.

Download the guidance on this topic