Winning hearts and minds
Many local authorities are seeking to achieve changes in staff terms and conditions through a dismissal and re-engagement process. Kevin McCavish explains what is involved and sets out the legal risks.
The recently well-publicised industrial action at Southampton City Council was triggered by attempts to impose pay cuts on the workforce. The dispute reached its “endgame” with the Council imposing a deadline for employees to sign new contracts of employment or be dismissed. In July, a council spokeswoman confirmed that 99% of staff had chosen to sign the new contracts but that those who had not would be dismissed.
In Shropshire the council took similar action when it failed to agree changes to terms and conditions with trade unions; it terminated employees’ contracts and immediately offered them employment on the new terms and conditions.
At the start of the economic downturn employers in the private sector looked for creative ways to avoid making redundancies. It was common to see employees readily agreeing to changes to their terms and conditions (usually reductions in pay and/or other benefits such as pension contributions) or for employees to agree to take sabbaticals or temporarily cut working hours.
But, with the pain of budget cuts starting to bite across the public sector, the same spirit of co-operation from trade unions appears to have been lacking. This has resulted in local government employers resorting to the extreme mechanism of dismissing and re-engaging employees in order to force through changes to terms and conditions.
This process has always been recognised as the “nuclear option” for an employer. It should only ever be used as a last resort following professional legal advice as there is a real risk of getting it wrong and incurring significant legal liabilities.
Legal background
The employment contract, consisting of the terms and conditions governing the employment relationship between an employer and their employee, is formed at the start of employment.
The general rule is that once a contract of employment is in place, its terms and conditions can not be varied by one party without the agreement of the other.
In reality, over the course of employment an employee’s terms and conditions will change in a number of ways - for example, annual pay increases. However, such changes, which are either positive to the employee, or at least, not detrimental to them are likely to happen by mutual consent and therefore cause no legal problem for the employer.
Issues arise where an employer wishes to make a change that is not, or is perceived as being, not so positive for the employee.
If an employer simply imposed a change to a contractual term and the employee did not consent to this there would be a breach of contract entitling the employee to seek damages from their employer.
However, if the breach was serious enough (because it concerned a very important term of the contract such as those relating to pay or status) the employee could resign in response to that fundamental breach and claim constructive dismissal.
Implementing changes
Where an employer wishes to vary the term of an employee’s contract the employer has a stark choice: seek express agreement from the employees or dismiss the employees and immediately re-employ them on the new terms.
An employer should always start by seeking the employee’s express agreement to the new term(s) i.e. by asking them to sign a new contract of employment or letter of variation. Clearly, where the employee perceives that the change is detrimental they, or their representatives, are unlikely to be willing to do so.
Consultation is crucial
However, even if a change is to the employee’s detriment this does not mean it can not be “sold” to them providing the employer goes about the task in the right way: consultation and communication are crucial.
Trade union and other employee representatives will need to be fully involved in the consultation process but getting the employer’s message across to whole workforce clearly and dispassionately is half the battle. If employees do not fully understand what is being asked of them false impressions can result in an entrenched refusal to accept the changes. Employers should ensure that the communications programme is properly planned and carefully implemented to try and win “hearts and minds”.
A sufficient period of consultation during which full and transparent information about the proposed changes, the reasons for them and the likely consequences of failing to agree to them are communicated to the employees can only help to persuade them to co-operate with the changes.
If agreement can not be reached with some or all of the employees after such consultation and the employer still feels that the changes need to be made, then the process will need to move on to the next stage.
Dismissal and re-engagement: legal risks
The most extreme solution for an employer seeking to impose changes to terms and conditions of employment is to terminate the existing contract and offer to immediately re-employ the employees on the new terms.
There are various legal risks inherent in this action and it should not be undertaken until all other avenues have been exhausted, and where the employer can show that they have a sound business reason for dismissing an employee who refuses to accept the proposed changes.
An employer will need to serve notice or pay in lieu of notice in such cases to avoid claims of wrongful dismissal and this could prove expensive where large numbers of employees are affected. The employer may still be vulnerable to claims of constructive dismissal where it announces its intention to take such action and the employee resigns in anticipation of that.
A dismissal for failure to accept detrimental changes to terms and conditions will potentially be fair as a dismissal “for some other substantial reason” provided the employer has a legitimate reason for wanting to impose the change and an offer of employment on the varied terms is made at the same time.
However, an employer will also have to be meticulous in following a fair procedure when carrying out the dismissals otherwise they could also be liable for unfair dismissal. The key to this will be to carry out sufficient consultation meetings with individuals so that they fully understand the reasons behind the proposed changes and the consequences of not agreeing to them, and have had the chance to explain their own position and the reason for it.
Clearly, at this stage, anything the employer can do to respond to any such representations including mitigating their plans in any way will be helpful. An employer should always consider carefully whether there are any alternatives to the changes it is proposing i.e. is there a way of achieving the same result which is less detrimental to the employees?
In the recent case of Garside and Laycock Limited v Booth UKEAT/0003/11 the Employment Appeal Tribunal (EAT) overruled a tribunal’s decision that an employer unfairly dismissed an employee for failing to accept a pay cut where the employer was facing trading difficulties. The EAT stressed however that a tribunal should look at the wider question of whether the change proposed was “equitable” considering the size and resources of the employer, and factors such as whether a pay cut was imposed at all levels of the workforce i.e. sacrifices were also being made at more senior levels.
Where more than twenty employees are to be dismissed and re-engaged at one establishment in any 90-day period there will also be legal obligations to inform and consult with employee representatives because the legislation relating to collective redundancy will apply (see GMB v Man Truck and Bus UK Ltd [2000] IRLR 636).
Although this may seem surprising, the definition of “redundancy” for these purposes covers any dismissals that are, for a reason, not connected with the employee.
The need to carry out collective redundancy consultation will have an impact on any timetable as notices of dismissal can not be served until consultation has been completed.
As events in Southampton demonstrate, particularly in the public sector, where there is a heavily unionised workforce industrial action in response to the changes is also a significant risk.
Timing
Employers seeking to introduce contractual changes need to be prepared for the long-haul. Implementing new terms is not a process that can or should be rushed and a timetable should be planned on the basis of months not weeks. Trying to cut corners in the procedure to save time, or unduly pressure employees to accept changes before completing an adequate consultation process risks being a false economy. Employers who engage in such action are more likely to susceptible to (and be less able to defend) employment tribunal claims from the affected workforce.
Kevin McCavish is a partner at Shoosmiths. He can be contacted on 03700 86 8802 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..
See also:
Less than half of Birmingham staff sign new contracts by unofficial deadline
Shropshire fires gun on "dismissal and re-engagement" process for all staff
Local authority faces legal action over imposition of pay cuts
