Beginning of a new term

Councils have been looking closely at the scope to change the terms and conditions in their employees' contracts of employment. Huw Roland Jones looks at what is involved.

We are all aware of the financial challenges facing local government. It is inevitable that, as an expensive overhead, staffing costs will be subject to scrutiny.

In a recent Eversheds survey, 91% of council respondents believed job losses were the greatest challenge. Almost two-thirds (61%) of the same councils were planning changes to employment terms and conditions; a similar number were planning changes to other employment practices.

People are key to the success of any organisation. The private sector in many cases looked at alternatives to redundancies in order to retain talent. This often involved temporary or permanent changes to terms and conditions of employment. However, this carries risks of employment law, industrial relations and morale and motivation to name a few.

Any organisation contemplating changes to terms and conditions of employment must first look to see whether changes are authorised by the contract itself. Even where there is a contractual right, care must be taken to ensure that any such changes would have been within the reasonable contemplation of the parties. For example, a contractual clause providing for the employer to make any changes whatsoever to terms and conditions of employment without notice is unlikely to be enforceable.

In the absence of a contractual right, there are three ways in which the employer may vary the contract of employment. Firstly, the employer may seek the consent of the employees on an individual or a collective basis. Secondly, the employer may unilaterally impose the change and rely on the employee’s conduct to establish implied agreement. Thirdly, the employer may terminate each employee’s employment and offer re-employment on the new terms and conditions.

Reliance on implied consent is fraught with risk, particularly if the changes do not have an immediate effect, such as changes to redundancy compensation entitlement. Generally, the advice is to avoid relying on implied consent.

Actual consent (individual or collective) has obvious industrial relations advantages over enforced changes; however there may be significant objections to voluntarily negotiating less beneficial terms and conditions.

Our experience is that, where a collective agreement is not achievable, the employer must embark on a sustained campaign to win the ‘hearts and minds’ of employees. This will require an explanation of the tough choices which must be made and the reasoning behind those decisions. This will involve direct communication with the employees including ‘road shows’ and possibly attending places of work.

Financial inducement to obtain agreement may be an option, but care should be taken to ensure that the inducement is not challenged as a deterrent for employees from engaging in collective processes which is unlawful.

We have recent experience of changing the terms and conditions of 12,000 employees and all but a hundred or so voluntarily agreed to the changes. The commitment of the Council to engage with its employees in this regard should not be underestimated in delivering a strong outcome.

Where consent is not forthcoming at all, termination of the original contract will produce a ‘dismissal’ for unfair dismissal purposes, irrespective of whether or not any individual accepts or declines the new contract post termination. Employees could therefore remain in employment and ‘stand and sue’ for unfair dismissal. The employer will have to rely on ‘some other substantial reason’ as the fair reason for dismissal in the event of a challenge.

Where the employer is proposing to dismiss and re-engage 20 or more employees within a 90 day period, there must be collective consultation for a minimum of 30 days (which increases to a minimum of 90 days where it is proposed to dismiss 100 or more staff). Failure can result in a protective award up to 3 months gross pay per affected employee. The timing and quality of any consultation exercise is key.

Employers can ‘create their own evidence’ by persuading a high percentage of employees to accept the new terms and conditions and therefore underlining the reasonableness of those new terms, minimising the need for dismissals.

Councils should also be mindful of the public sector equality duties ensuring that any changes to terms and conditions do not fall foul of anti-discrimination legislation. Councils will need to be aware of indirect as well as direct discrimination risks where particular categories of protected employees suffer a detriment as a consequence of the changes to terms (e.g. part-time employees who are likely to be predominantly female).

In summary, the current financial climate presents significant challenges to the public sector as an employer. Staff are not exempt from budgetary challenges. The best approach must be to work with the employees and the Trade Unions wherever possible, but ultimately public bodies must be prepared to look at change by enforcement.

Our experience demonstrates that changes to terms and conditions are achievable and significant benefits can be derived without necessarily making employees compulsorily redundant. Proper process and procedure is critical if liabilities are to be minimised. A business case should be prepared explaining the reasons for the change; pre-planning the process and communications strategy is key.

It will be necessary to consider the wider impact and legal consequences of any such action, but changes to terms and conditions of employment can provide an opportunity to deliver budget savings without reducing staff numbers.

Huw Rolant Jones is a partner in Eversheds’ Local Government Employment Team. He can be contacted on 0845 498 7483 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..