Businesses can significantly reduce their employment costs by changing employment terms. Reducing salaries or working hours, imposing shift changes, restricting overtime and imposing pay freezes can all be successfully implemented if handled properly and in accordance with the law.
The employment contract is likely to determine the ease (or otherwise) with which such changes can be implemented. More often than not, such strategies will involve changes to contractual terms and conditions, whether express or implied. Along with express terms such as working hours and salary, employers must be mindful of terms that are implied into the contract by custom and practice, such as regular and consistent pay rises over a period of time.
In the absence of an express term allowing employers to make amendments to the contract (and bearing in mind that changes to contracts must in any event be agreed with employees), employers have several options. The easiest method is to obtain express agreement to the changes from employees. If the changes cannot be agreed, they may be imposed unilaterally, or employees’ employment could be terminated and reengagement offered on new terms. However, these alternative options must be handled carefully in order to reduce the risk of employment claims such as breach of contract, constructive or unfair dismissal.
Employers should also be vigilant for exposure to discrimination claims when considering such changes. For example, will modified shift patterns have an adverse effect on those with childcare responsibilities or religious observation requirements? If so, can the changes be justified in defence of a claim for indirect discrimination on grounds of sex or religion?
Further, proposed changes to terms and conditions may trigger a duty to inform and consult employees if dismissal is contemplated for those who refuse to accept the changes. As employers will not know at the outset how many dismissals they may have to make in order to implement the changes, collective consultation provisions should be followed at the outset if 20 or more employees are likely to be affected.
As with redundancies, careful consideration of the reasons for the changes is required, as this information should be communicated to employees during the consultation period. Cogent and compelling reasons will be required, and employers need to be able to demonstrate that they have balanced their needs with those of their employees.
General reference to the economic slowdown, for example, is unlikely to be sufficient, particularly where the changes result in financial detriment to employees. This process will also assist in justifying the fairness of any resulting dismissals.
In these challenging economic times, when presented as an alternative to making redundancies, accepting contractual variations is likely to be the lesser of two evils for employees. However, the proposals will stand or fall on the accompanying internal marketing, and a carrot and stick approach is often a prudent one for employers to adopt. For example, introducing salary cuts alongside a more lucrative commission scheme should help incentivise and retain high performers and should provide the double benefit of decreased salary costs and increased revenue generation.
Mark Levine is a partner and Jennifer Millins is a solicitor in the employment group at Mishcon de Reya
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