24 May 2010
No uncertain terms
Attempts to impose unilateral changes to terms and conditions of employment could hit employers where it hurts – in the pocket. Ruth Nodder reports
Changing employees' terms and conditions is rarely an easy task, particularly if those changes involve key terms, such as pay or hours. Employers seeking to harmonise employees' terms and conditions can encounter significant legal obstacles as well as a potential employee relations backlash. However, some of the legal difficulties may be eased if the employer has reserved an express contractual right to unilaterally alter employees' terms.
Without such an express contractual provision, it is only possible to lawfully change the terms of an employee's contract of employment with their express consent. If proposed changes affect a large number of employees, it may prove difficult to get universal agreement. In a stalemate situation, employers sometime resort to terminating with notice the employment contract of any employee refusing to agree to the proposed changes, then immediately offer to re-engage on the proposed new terms.
Such action is certainly not without risk. An employer must be able to demonstrate that it has a good business reason for seeking to impose the proposed change(s) and that it has consulted properly. If the employer is proposing to dismiss 20 or more employees as part of a harmonisation process, statutory collective consultation duties will be triggered. A failure to follow proper procedures in such circumstances will leave the employer liable not only to claims of unfair dismissal but also, in the case of a failure to undertake proper collective consultation, an additional financial penalty of up to 90 days' pay, uncapped, for each dismissed employee.
So, with the stakes so high, how much comfort can an employer draw from a reserved contractual right which purports to unilaterally vary employees' terms and conditions? The employment appeal tribunal (EAT) recently looked at this very issue in the case of Bateman and others v Asda Stores.
A significant minority of Asda's employees were working on a different pay structure to the rest. Asda decided to harmonise pay and work structure across its entire workforce and designed a new structure which ensured that no employee would suffer a pay reduction as a result of harmonisation. After an extensive consultation process, more than half of Asda's workforce voluntarily signed up to the proposed new structure. However, there were 8,700 who refused.
Under the heading 'Your contract', Asda's staff handbook reserved the right for Asda "to review, revise, amend or replace the contents of the handbook and introduce new policies from time to time reflecting the changing needs of the business". Asda decided to rely upon this term to unilaterally impose new terms and conditions.
Seven hundred employees brought employment tribunal claims against Asda for unlawful deduction of wages, breach of contract and, in some cases, unfair dismissal. Six test cases were selected for consideration. The employees argued, among other things, that Asda's power to vary had been limited to the non-contractual sections of the handbook and that even if this was not the case, Asda was still obliged to gain employee consent before varying contractual terms. On consideration, the employment tribunal concluded that the wording of Asda's handbook was clear and unambiguous, and that it allowed Asda to impose new terms on its employees without their express consent. The employees appealed to the EAT.
The EAT agreed with the tribunal that there was no ambiguity in the wording of the handbook and, as such, the 'contra proferentum' rule – which provides that any ambiguity in contract wording should be interpreted in the employee's favour – offered the employees no assistance. The appeal was therefore refused.
This case gives useful confirmation that where a contract clearly and unambiguously reserves the right to vary employees' terms and conditions, an employer may ultimately seek to unilaterally impose terms on this basis.
However, even if employers have reserved such a right, they should still act with caution. In particular, it should be noted that in this case, the changes imposed by Asda did not result in employees suffering a pay reduction. Also, before relying on the contractual variation clause, Asda had undertaken a comprehensive consultation exercise in an attempt to obtain employee consent. If either of these facts had been different, the employees might have been able to pursue a claim that, notwithstanding the existence of an express variation clause, Asda's actions in seeking to operate it in these circumstances amounted to a fundamental breach of trust and confidence. As the employees had failed to argue this point at tribunal, the EAT was not able to address it directly on appeal.
Therefore, employers who are contemplating any changes are still best advised to seek employee consent and to consult fully about proposals in advance rather than simply seeking to rely on a general contractual right to impose changes.
Ruth Nodder is principal legal adviser for EEF: www.eef.org.uk
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