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When faced with the need to reduce staff costs, one of the options employers often consider is changing terms and conditions of employment, for example reducing salaries or benefits to bring down costs while avoiding the need for redundancies. However, a contract of employment, like any other contract, requires the consent of both parties for changes to be effective. This can leave employers in difficult situations where employees refuse to consent to variations in their contracts which would be disadvantageous to them.

Some contracts of employment contain clauses to the effect that the employer may unilaterally make changes to the terms and conditions. However, employers should approach such clauses with caution. A general rule of contractual interpretation is that ambiguity in a clause is interpreted against the party who is seeking to rely on it. Employers risk finding themselves in breach of contract where they rely solely on clauses allowing them to make unilateral changes if a court or tribunal later finds that the clause was not in fact sufficiently wide to cover the changes it was trying to make. Such breaches could also form the basis of claims of constructive unfair dismissal.

Another option where express consent has been sought and refused is to serve notice of termination on those employees who have not agreed and to offer reengagement on the new terms. Care should be taken to follow a fair process, including giving proper notice. To avoid any claims for unfair dismissal, employers should ensure that there is a sound business reason for the changes sought, (and be able to produce evidence of this if necessary).

 Employer may sometime take the relatively bold step of imposing a contractual change which has not been expressly agreed to. In some situations, employees can be held to have given implied consent to the changes in terms and conditions which would prevent them subsequently claiming breach of contract or constructive dismissal. Where employees wish to demonstrate that they have not agreed to the changes, they should show that they are “working under protest”. This can preserve an employee’s right to bring a claim against the employer arising out of an imposition of terms if they carry on working under the new terms.

It can, however, sometimes be difficult to tell whether an employee has given their implied consent to a change, as the recent decision in the Court of Appeal case of Abrahall and others v Nottingham City Council and another demonstrates. The case concerned several hundred employees of Nottingham City Council who claimed that their contracts gave them contractual rights to incremental pay increases. In 2010, a two year pay freeze was implemented by the Council and the unions strenuously objected, including balloting for industrial action, although this was not then carried out as the required turnout was not met. However, no employees raised a grievance during the two year period and continued working during the pay freeze. When the Council proposed to extend the pay freeze, the unions lodged a collective grievance and thereafter a claim in relation to the pay freeze, claiming this was in breach of contract. The Council contended that there was no contractual right to incremental increases in pay, and even if there were, the employees had agreed to a variation in their contracts by not objecting to the pay freeze during the previous two year period.

The discussion around whether there was a contractual right is not relevant here; it is sufficient to say that the Court of Appeal held that there was a contractual right to incremental pay increases. The Court of Appeal also rejected the Council’s submissions in relation to the implied acceptance of the variation of terms. Although the leading judgement criticised the unions and the employees for not making it expressly clear that they did not agree to the variation, the Court was swayed by the fact that:

1) The changes were wholly to the disadvantage of the employees (in contrast to some contractual variations where, for example, pay is reduced but other benefits are increased);
2) The employees were not used to consenting individually on pay matters as these were usually negotiated collectively; and
3) The unions had objected and balloted on industrial action, even if this was not then agreed by a sufficient percentage of membership to be effective, and there was no evidence to suggest that the rejection had transformed into acceptance at any point.

It is worth noting that the Court of Appeal expressly rejected the contention submitted on behalf of the unions that employees could never be held to have accepted a variation of their terms and conditions simply by continuing to work without protest. Where an employer makes clear that they wish to modify the contract and the employee continues to work under the new terms, they are in principle capable of consenting through their actions. However, this depends on the particular circumstances of the case, and any such inference must be unambiguous. If there is a reasonable alternative explanation for the employee continuing to work, as there was in the Nottingham City Council case, then it would not be right to infer that an employee would agree to a reduction of their rights unless their conduct clearly demonstrates that intention.

Employers should therefore be very careful when seeking to rely on implied consent to a variation, especially where there has been some protest by the employees or their unions. It will often be safer to dismiss and offer reengagement on the new terms to ensure there is certainty of what the contractual terms between the parties actually are. Although this opens up the possibility of claims of unfair dismissal if the employee rejects the new terms and is subsequently dismissed, the employer is likely to be better placed to defend the claims than if the contractual change had been imposed.

If you have any queries about amending terms of conditions of employment, please contact a member of the Stronachs Employment Team.

Annika Neukirch, Solicitor

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