Changing terms and conditions 2: consequences of unilateral changes

Some other substantial reason

An employee's refusal to agree to new terms and conditions of employment on a reorganisation of his or her employer's business will be SOSR if there is "some sound, good business reason" for the reorganisation. The reorganisation must be such that, if the employee does not agree to the new terms and conditions, the only "sensible" thing to do is terminate his or her existing contract of employment and offer him or her a "reasonable" new one (Hollister v The National Farmers' Union).

Whether or not there was a breach of contract by the employer is irrelevant to whether it has made out SOSR (Pauls Agriculture Ltd v Butler). But in order to determine whether when the employer dismissed the employee it had such a reason, an industrial tribunal should look not just at when the employer gave the employee notice of dismissal but also at the events leading up to and following the date of the notice (Parkinson v March Consulting Ltd).

The very survival of the employer's business need not be at stake, in the sense that it will otherwise come to a standstill (as, for example, where the alternative is going into receivership or liquidation): it is enough that without the reorganisation there will be "some serious effect" on the business (Genower v Ealing, Hammersmith and Hounslow Area Health Authority). As the EAT put it in McGibbon and another v OIL Ltd: "... there must be some situation of pressure on the employer... it is not enough for an employer simply to say that it is convenient or helpful to him to carry out a reorganisation, or that to do so would reduce his employment costs."

An industrial tribunal must therefore examine the employer's motives for carrying out the reorganisation, and satisfy itself that the employer did not try to impose the new terms and conditions for arbitrary reasons (Catamaran Cruisers Ltd v Williams and others). And that means that the employer must produce evidence to show that the reorganisation had some discernible advantages or was one to which it attached importance (Banerjee v City and East London Area Health Authority).

For example, in Selfridges Ltd v Wayne and others, the EAT held that the refusal of some 50 out of 1,500 employees to give up a contractual Christmas bonus in return for a one-off 3% pay rise was not SOSR. There was no economic reason necessitating the withdrawal of the Christmas bonus, and a variation of the 50 employees' contracts of employment, when the company dismissed them. By that time, the financial difficulties that the company might have run into if the majority of its workforce had not agreed to the variation no longer existed.

By contrast, in RS Components Ltd v Irwin, the NIRC held that the refusal of a salesman to agree to a new restrictive covenant, preventing him from soliciting certain customers of his employer for 12 months after leaving its employment was SOSR. His employer had been losing orders from its customers to some of its former salesmen, who had inside knowledge of its customers and call schedules, and the covenant was reasonable.

An employer will have acted reasonably in treating an employee's refusal to agree to new terms and conditions of employment, in the context of a reorganisation of its business, as a sufficient reason for dismissing him or her if dismissal was within the range of responses open to a reasonable employer (Richmond Precision Engineering Ltd v Pearce). An industrial tribunal should avoid giving undue importance to one particular factor, and it ought to look at the reasonableness or unreasonableness of the employer's conduct in the context of the particular reorganisation (St John of God (Care Services) Ltd v Brooks and others). The tribunal is more likely to find that the employee's dismissal was fair rather than unfair if:

Redundancy

The dismissal of an employee who refuses to agree to new terms and conditions of employment will be by reason of redundancy only if it is "attributable wholly or mainly to: (a) the fact that his employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed by him... in the place where the employee was so employed; or (b) the fact that the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where he was so employed, have ceased or diminished or are expected to cease or diminish" (s.81(2) of the EP(C)A).

Those facts are known as "redundancy situations", and only if one of them was the sole or main cause of the dismissal will the dismissal be by reason of redundancy. The redundancy situation must, therefore, still be in existence at the time of the dismissal. "Typical of redundancy situations," said Lord Denning in Johnson and another v Nottinghamshire Combined Police Authority, "are these: There may be a recession in trade so that not so many men are needed. There may be a change in the kind of work done, as from wood to fibreglass, so that woodworkers are no longer needed... The business may be no longer profitable so that the employer has to cut down somewhere. Or, he may be overstaffed. The employer may meet such a situation by dispensing with the services of some of the men; or alternatively he may lower the wages; or put men on part time. If he does it by making a change in the terms and conditions of employment, it is due to a redundancy situation... where there is a change in the terms and conditions of employment, it is for the employer to prove that it was done for efficiency [that is, for SOSR], and not so as to meet a redundancy situation."

Refusal to move to different workplace

The "place where the employee was... employed" means the geographical location or area at or in which he or she in fact worked: it does not mean any place where he or she could be required to work under his or her contract of employment (Bass Leisure Ltd v Thomas). In that case, the EAT held: "the place where an employee was employed for the purposes of s.81(2)(a) and (b) of [the EP(C)A] is to be established by a factual enquiry, taking into account the employee's fixed or changing place or places of work and any contractual terms which go to evidence or define the place of employment and its extent, but not those (if any) which make provision for the employee to be transferred to another [that is, mobility clauses]."

Therefore, the dismissal of an employee who refuses to move to a new workplace will be by reason of redundancy if it was caused solely or mainly by the fact that:

In Cambridge & District Co-operative Society v Ruse, for example, the manager of one of the society's butcher shops was told, when the shop was closed, to report to one of its supermarkets, where he would take up the position of butchery department manager. After a short time, he told his boss that he was not happy with the new job and, on the basis that his old one had disappeared, he asked to be made redundant. But the society took the view that he was not redundant, claiming that it was entitled under a mobility clause in his contract of employment to transfer him to the new job. That clause read: "You are employed within the society's food division with the job title of butchery manager. You may be required to pursue your employment at any of the establishments comprising the said division."

"... if an employer seeks to rely on business reorganisation or economic necessity as a reason for a dismissal, it is incumbent on them to produce some evidence to show that there was a reorganisation or that there was some economic need for economy. In deciding whether a dismissal was fair or unfair ... it [is] very material to know whether the employer was making profits or losses."

(statement of an industrial tribunal approved by the EAT in Ladbroke Courage Holidays Ltd v Asten)

An industrial tribunal, to which the employee applied for a redundancy payment after leaving the new job, found that the clause did not entitle the society to require him to work as a departmental manager in the supermarket. And the EAT upheld that finding: "your employment" clearly was not intended to refer to the employee's status as an employee of the society; his "employment" for this purpose was as the manager of one of the society's shops, which was substantially different from that of a departmental manager; and, as the position of a butcher shop manager was no longer available (all the society's butcher shops having closed), the employee was dismissed by reason of redundancy.

Refusal to agree to other changes

Some doubt remains about the meaning of "work of a particular kind" in the context of s.81(2)(b) of the EP(C)A. Either it means any work which employees can be required to do under their contracts of employment (Nelson v BBC); or it means the work which they in fact do (Chapman and others v Goonvean and Rostowrack China Clay Co Ltd), and "which is distinguished from other work of the same general kind by requiring special aptitudes, skills or knowledge" (Amos and others v Max-Arc Ltd).

In any event, s.81(2)(b) cannot be read as saying "work of a particular kind on the existing terms and conditions of employment" (Chapman). And the expression "work of a particular kind" refers to "the task to be performed, not to the other elements which go to make up the kind of job that it is" (Johnson and another v Nottinghamshire Combined Police Authority). Therefore, the withdrawal of an employee's contractual fringe benefit or a change to his or her work times, for example, do not of themselves prove that a redundancy situation in terms of s.81(2)(b) exists. Only if the employer's business no longer needs any or as many employees to do "work of a particular kind" will there be such a situation.

In Chapman, the company provided a bus to take 10 of its employees to and from work. When the company made three of them redundant, it also discontinued the bus service as uneconomic and left the other seven to find their own way to work. But, since none of them could do so, all of them had to resign. An industrial tribunal found that they were constructively dismissed, but that their dismissals were not by reason of redundancy, and both the NIRC and the Court of Appeal agreed. The company still needed as many employees to do the work that the dismissed employees had done, having had to take on another seven employees. They lost their jobs simply because they lived too far away to make it worthwhile to carry on paying the cost of bringing them to work.

Similarly, in Johnson, the Court of Appeal held that the dismissals of two clerks at a police station for refusing to work the same number of hours per week at different times of the day were not by reason of redundancy. Lord Denning said: "If the employers require the same number of employees as before - for the same tasks as before - but require them at different hours, there is no redundancy situation."

Lord Justice Cairns said: "... two jobs which have the same description may really involve different kinds of work, and... the difference in kind may be linked with a difference in time. Thus it would be arguable that the work of a night nurse is different from that of a day nurse. Where, as in [this case], the actual tasks to be performed are unchanged and the total hours are unchanged and the only difference is between the parts of the day when work is done and the number of days over which the work is spread... the kind of work remains the same."

And Lord Justice Stephenson said: "... an alteration of method or hours or of the type of person employed or of status or responsibility - or even of remuneration - may alter the work done to such an extent that it would in common sense be regarded as a different task or job so that the change required by the employer and rejected by the employee would be a change in kind. No longer would an employee be said to do the same job or the employer to require the same task to be performed. But that is not [this] case... It is the same job done to a different time schedule."

It follows that "work of a particular kind" may be changed by the introduction of new working methods or technology. In North Riding Garages Ltd v Butterwick, Mr Justice Widgery said: "... an employee who remains in the same kind of work is expected to adapt himself to new methods and techniques and cannot complain if his employer insists on higher standards of efficiency than those previously required; but if new methods alter the nature of the work to be done it may follow that no requirement remains for employees to do work of the particular kind which has been superseded and that they are truly redundant."

"Work of a particular kind" may also be changed by a reallocation of job functions. But, in Murphy v Epsom College, Sir Denys Buckley said: "Every case of reorganisation must... depend intimately on its particular facts. In each case it must be for the industrial tribunal to decide whether the reorganisation and reallocation of functions within the staff is such as to change the particular kind of work which a particular employee... is... required to carry out, and whether such change has had any, and if so what, effect on the employer's requirement for employees to carry out a particular kind of work."

The overall requirements of the employer's business is, therefore, the test for whether "work of a particular kind" has ceased or diminished. But, even if there is no reduction in the need for "work of a particular kind" or in the number of employees needed to do it, there remains an argument that the dismissal of an employee who refuses to agree to a variation of his or her contract of employment may be by reason of redundancy. This argument succeeded in Dacorum Borough Council v Eldridge and another, where the EAT held that the dismissals of two refuse collectors who refused to sign new contracts of employment on different terms were by reason of redundancy.

In the EAT's view, the council expected its need for refuse collectors to cease, from the time when it became obliged by the Local Government Act 1988 to put its refuse collection service out to competitive tendering: if its tender was not the most competitive, then the work would go to a private contractor and it would have to make all of its refuse collectors redundant. And, in order to stand any chance of submitting the most competitive tender, it had to change its refuse collectors' terms and conditions of employment.

Arguably, however, the dismissals were not by reason of redundancy because they were not caused by the redundancy situation. Rather, the cause of the changes, for the rejection of which the two employees were dismissed, was the coming into force of the Local Government Act 1988. And the redundancy situation had ceased to exist when the council's tender was accepted. It did not, therefore, last up to and including the employees' refusal to sign the new contracts.

Note: Where an employer proposes to dismiss and to offer to re-engage 20 or more employees at one establishment, it is likely to be under a duty to consult recognised trade union representatives or elected employee representatives about its proposal in accordance with s.188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (the TULR(C)A). The definition of "redundancy" for the purposes of this statutory duty (see the box on p.6) is significantly broader than the definition in s.81(2) of the EP(C)A (see above).

Redundancy payment

Where an employee who refuses to agree to a variation of his or her contract of employment is dismissed by reason of redundancy, he or she will be entitled to a redundancy payment (assuming he or she qualifies for, and is not excluded from, the right to one):

The suitability of the employment offered depends on the nature of the new job, which must be "suitable" in relation to the particular employee concerned, taking into account the tasks to be performed as well as all the other terms on offer (such as the pay, hours and place of work, and status). And whether that employee's refusal of the offer, or his or her resignation during the trial period, is reasonable or not depends on the employee's personal point of view and circumstances (including his or her domestic circumstances).

UNILATERAL VARIATION

Where a contract of employment is unilaterally varied by the employer, as a fait accompli, the employee can do one of three things:

Implied agreement

If, following a unilateral variation of a contract of employment by the employer, the employee carries on working for any length of time without objection, then he or she may be treated as having impliedly agreed to the variation. A lot depends on the nature of the variation. If it relates to something which has immediate practical effect (such as pay), and the employee does not object after it is implemented (for example, his or her pay is reduced), then obviously the employee may well be taken to have impliedly agreed to it (unless, for example, he or she had received an assurance from the employer that it would make up the shortfall when it could afford to do so).

But, if the variation relates to something which has no immediate practical effect (such as the introduction of a mobility clause or a restrictive covenant), then it is asking too much of "the ordinary employee" to require him or her either to object to the variation or to be taken to have impliedly agreed to it. To require an ordinary employee to risk a confrontation with his or her employer over such a variation would be "unrealistic of the law" (Jones v Associated Tunnelling Co Ltd). But the agreement of, say, a company director, could be implied "somewhat more readily" in these circumstances (James C Watson & Co Ltd v Jacobson).

Even if the variation relates to something which does have immediate practical effect, the employee is entitled to a period of time in which to make up his or her mind whether to stay or to leave, as is illustrated by the following two cases.

In Shields Furniture Ltd v Goff and another, two employees were told by their employer to report for work the following day at a different workplace. The NIRC held that they did not impliedly agree to a change in their place of work by working at the new one for three weeks before they resigned. It said: "What is an employee expected to do in these circumstances? He does not want to be out of a job. Nor, if he is a conscientious workman, does he want to let his employer down if this can be avoided. In most cases, therefore, he goes to the new job. He goes with an open mind. There is a period when he is uncommitted. During that period he makes up his mind whether he will accept the new employment... or whether he will leave..."

In Turvey and others v C W Cheyney & Son Ltd, four polishers employed by the company accepted its offers of jobs in different departments on a trial basis after being told that work in the polishing department was about to stop. All worked in the new jobs for more than four weeks and then, finding that the new jobs did not suit them, resigned. But the EAT held that they had not impliedly agreed to a variation of their contracts of employment. It said: "You have to see whether the employee is accepting the new contract by his conduct, or whether he is giving it a try to see whether he will accept it or not."

If an employee says that he or she is giving the new terms a trial, clearly he or she will not have accepted them simply by doing that. But, if the employee goes on working under the new terms without anything more being said about it, the time will come when a reasonable period of time for making up his or her mind has expired, and he or she will be taken to have entered into a new contract of employment or impliedly agreed to a variation of his or her existing one.

What is a "reasonable" period of time depends on the particular circumstances. These will include whether the employer asked the employee how things were coming along and what he or she was going to do (Air Canada v Lee); and whether the employer gave the employee time to make up his or her mind and continued to pay him or her meanwhile (Bliss v South East Thames Regional Health Authority).

If, instead of saying that he or she is giving the new terms a trial, the employee makes it clear that he or she objects to them, then he or she will not be treated as having impliedly agreed to them by carrying on working and drawing pay for a limited period of time, even if his or her purpose is merely to make time to find another job (Marriott v Oxford and District Co-operative Society Ltd (No.2)). The mere passage of time is not, in itself, sufficient to indicate implied agreement (Bashir v Brillo Manufacturing Co). But there must be some limit to the length of time during which the employee can continue to work and be paid at the same time as keeping open the option of resigning and claiming constructive dismissal (WE Cox Toner (International) Ltd v Crook). In that case, the EAT did not need to resolve that question, and it will not even arise if the employee exercises his or her other option - of suing his or her employer.

Action for breach of contract

In Rigby v Ferodo Ltd, the House of Lords held that the continued working of an employee after the company unilaterally reduced his wages - and his acceptance for the time being and under protest of the wage that the company, with full knowledge of his lack of agreement, chose to pay him - could not be construed as an acceptance by him of the new terms that the company was seeking to impose. He had also brought an action for breach of contract against the company.

Such an action must be brought in a civil court, and the potential remedies are damages or an injunction (see below) and/or a declaration (that is, a statement that the unilateral variation of the employee's contract of employment constituted a breach of contract by his or her employer). But none of these remedies will be available if the court decides that such variation was allowed by a term of the contract (see part 1 of this series).

Damages

Assuming that the employee's action is successful, the court may not award damages unless the employee has lost out financially as a result of the implementation of the variation. He or she will have done so not only if the variation is a pay-cut, but also if it is, for example, a reduction in his or her contractual hours of work or a demotion. The damages will be equivalent to the total amount by which the employee was underpaid between when the variation was implemented and when the award is made: they will not be limited to the amount of the shortfall over the employee's notice period under his or her contract of employment (Rigby v Ferodo Ltd).

Injunction

An injunction is a discretionary remedy, and will not be granted if the employer and the employee have lost confidence in one another. Nor will it be granted unless there is "a serious issue to be tried" in relation to the alleged breach of contract by the employer; damages are not "an adequate remedy"; and "the balance of convenience" is in favour of granting it (American Cyanamid Co v Ethicon Ltd).

Those principles were applied in Hughes and others v London Borough of Southwark, where the council instructed four of its social workers to work away from their workplace for three days a week for at least six weeks. They applied to the High Court for an injunction to prevent the council from requiring them to carry out the instruction until the trial of their action for breach of contract against the council. In that action, they claimed that they could not be required under their contracts of employment to carry out the instruction.

The Court granted the injunction. It held that the council had confidence in the employees, because it would not otherwise have given them the instruction. Nor would it have been willing to keep them on if they were willing, despite reservations or threats of resignation, to carry out the instruction. And simply because there was a dispute between the parties did not mean that mutual confidence had gone.

The Court also held that there was a serious issue to be tried, because the instruction was arguably unreasonable, and that damages would not be an adequate remedy. On the one hand, the employees would suffer loss of job satisfaction and distress as a result of being taken away from their work, neither of which was capable of being compensated by an award of damages. On the other hand, any loss or damage which might be suffered by the council would be adequately compensated by such an award.

Finally, the Court held that the balance of convenience was in favour of granting the injunction. Moving the employees might well only be at best a temporary palliative to a problem that needed a more thoroughgoing and permanent solution. Meanwhile, a situation which was currently satisfactory at the employees' workplace would itself have been put in crisis; and the council's statutory duty to provide social workers at that place might very well be in danger of being breached if the instruction were allowed to operate. In addition, management had failed to inform themselves of the relevant considerations before deciding on priorities.

By contrast, in MacPherson v London Borough of Lambeth, the High Court declined to grant an injunction directing the council to pay staff employed in its housing department their salaries falling due until the trial of their action for breach of contract against the council. In that action, the employees claimed that under their contracts of employment they could not be required to operate a new computer system introduced by the council. They had refused to do so but continued to report for work, despite having being told by the council not to return to work, and that their pay would be stopped, until they agreed to do so.

The Court held that the employees could not fully and efficiently do all the work which they were required to do under their contracts of employment without operating the new computer system. Therefore, they could not claim to be still able and willing to perform their contractual obligations by working in the way in which they had worked before that system was introduced. And the council could not be compelled to accept and pay for something significantly less than the full and efficient performance of the tasks allocated to the employees by their contracts of employment.

Wages Act complaint

As an alternative to bringing an action for breach of contract against his or her employer in a civil court, an employee may complain to an industrial tribunal that the employer has made a deduction from his or her wages contrary to s.1(1) of the Wages Act 1986 (Bruce and others v Wiggins Teape (Stationery) Ltd). The tribunal will uphold the complaint if:

The term "wages" means any sums payable to the employee by the employer in connection with his or her employment, and includes sums referable to the employee's employment whether they are payable under his or her contract of employment or otherwise (s.7(1)(a) of the Wages Act 1986). Such sums are "properly payable" if they are contractual (and, as we showed in part 1 of this series, may be so if they are discretionary), and a "deduction" includes both a non-payment and a reduction.

Where the tribunal upholds the employee's complaint, it will make a declaration to that effect and order the employer to pay the employee the amount of the deduction (s.5(4)(a) of the Wages Act 1986). If the employer were to dismiss the employee solely or mainly because he or she had made the complaint, then the dismissal would be automatically unfair if the employee had done so in good faith - even if the complaint is not upheld (s.60A of the EP(C)A).

Refusing to work under varied contract

Where, following a unilateral variation of a contract of employment by the employer, the employee refuses to work under the contract as varied, then he or she puts the ball back in the employer's court. If the employer chooses not to back down, there are three options available to it:

Withholding pay

If the employee is in breach of contract by refusing to work under the contract as varied (that is, if the employer's unilateral variation of the contract was allowed by a term of the contract - see part 1), then the employer will be entitled either:

In Cresswell and others v Board of Inland Revenue, the civil servants employed by the Board to administer the PAYE scheme refused to do so using computers rather than manually. In response, the Board made it clear that it would not allow the employees to continue to work manually, as they wanted to, and that it would not pay them so long as they refused to work the new computerised system. At the same time, the Board also made it clear that it was not dismissing the employees, and that they were free to return to work whenever they chose - provided that they were willing to comply with its requirement that they operate the new system (which, as we saw in part 1, the High Court held was lawful). Meanwhile, the Court also held, the Board was entitled to act on the principle of no work (or, at any rate, readiness to perform whatever work it is that the employee ought to be willing to perform if physically able to do so) - no pay.

Whether an employer chooses to withhold part or all of an employee's pay, it will make a "deduction" from the employee's "wages" within the meanings of s.8(3) and s.7 of the Wages Act 1986 (see above). But that deduction will not contravene s.1(1) of that Act if it was allowed by a term of the employee's contract (see part 1), or if it was made on account of the employee's having taken part in a strike or other industrial action (s.1(5)(e)).

Dismissal

Where, following a unilateral variation of a contract of employment by the employer, the employee refuses to work under the contract as varied, the employer usually dismisses the employee. If it summarily dismisses him or her, then he or she may sue it for wrongful dismissal. But the dismissal will not be wrongful if the employee had gone on strike (Simmons v Hoover Ltd) or participated in a work to rule (Secretary of State for Employment v ASLEF and others (No.2)), or if he or she was in breach of contract by refusing to work under the contract as varied and that refusal was wilful.

Whether the employer dismisses the employee with notice or summarily, the employee may complain of unfair dismissal to an industrial tribunal (assuming that he or she qualifies for, and is not excluded from, the right to do so). And the dismissal will be unfair unless:

Only if the employee refused to do something which, under his or her contract of employment, he or she could be required to do will the dismissal be for misconduct. In Deeley v British Rail Engineering Ltd, for example, a senior sales engineer in a post dealing with overseas sales was dismissed for refusing to transfer to a comparable post dealing with domestic sales. An industrial tribunal found that he was dismissed for misconduct: the company was entitled to require him to work other than in the export field, because his contractual duties were as required of a sales engineer and that was all that he was. The EAT thought otherwise, implying a term into his contract of employment that his duties were as appropriate to the job of "sales engineer (export)", but the Court of Appeal restored the tribunal's decision.

By contrast, in London Borough of Redbridge v Fishman, the EAT held that the dismissal of a teacher at a state school for refusing to teach 18 rather than 12 lessons per week was not for misconduct and was, therefore, unfair. She had been recruited not as a general teacher but as a teacher with special duties which would largely absolve her from general teaching duties. The EAT also held that a teacher was not liable, whatever the precise terms of his or her appointment, to be instructed by the head teacher to do any kind of teaching as occasion might demand. In its view, the head teacher was entitled to require a teacher to do work other than that which he or she had been employed to do only if the instruction was reasonable. And what was reasonable would depend on the particular circumstances, taking account of the work which the teacher was employed to do and the custom and practice of the profession.

The EAT went on to say: "The jurisdiction based on [s.57(3) of the EP(C)A - that is, the 'reasonableness test'] has not got much to do with contractual rights and duties. Many dismissals are unfair although the employer is contractually entitled to dismiss the employee. Contrariwise, some dismissals are not unfair although the employer was not contractually entitled to dismiss the employee. Although the contractual rights and duties are not irrelevant to the question posed by [s.57(3)], they are not of the first importance." That dichotomy is illustrated by the next two cases.

In Wallace v E J Guy Ltd, the NIRC held that the dismissal of a sheet-metal worker for refusing to bend pipes unless he was paid extra for doing it was unfair. Pipe-bending was within the scope of his contract of employment, but management knew that he thought otherwise. And his pay would or might vary according to the type of work to be done, since it was customary for workers to negotiate bonus rates individually with management. Management should therefore have explained to him that his demand was unacceptable, and that he had a reasonable opportunity in which to accept their rate for the work or be dismissed.

By contrast, in Brandon and another v Murphy Bros, the EAT held that the dismissal of two key employees in a small family bakery business for refusing to work on a day when terms of a collective agreement, which was incorporated into their contracts of employment, required them to be on holiday was fair. Those terms formed only one element in applying s.57(3) of the EP(C)A, and in this case the size of the employer's business was particularly important. Had the employer not arranged to supply an important customer on the day in question, it would probably have lost the order and put all its employees' jobs at risk. In those circumstances, it was neither reasonable nor sensible for the two employees to try to enforce the letter of the collective agreement.

Employer's action for breach of contract

An employer's third option where, following its unilateral variation of an employee's contract of employment, the employee refuses to work under the contract as varied, is to sue the employee for breach of contract. Such an action must be brought in a civil court and, in practice, is brought very rarely. That is because to do so will exacerbate the employer's relations with its workforce. And the employer will invariably be "throwing good money after bad": the award of damages (which would be the employer's remedy if the court decided that the employee was in breach of contract) would normally not exceed the value of the work lost by the employee's refusal to work under the contract as varied, less the sums that would otherwise have been paid to him or her (Ebbw Vale Steel, Iron and Coal Co v Tew). If, however, the employee's breach of contract did not contribute to the loss sustained by the employer, then the award would probably be no more than the cost to the employer of hiring a substitute (National Coal Board v Galley).

Constructive dismissal

Where, following a unilateral variation of a contract of employment by the employer, the employee resigns and claims that he or she has been unfairly and/or wrongfully (constructively) dismissed, the employee will be treated as having been constructively dismissed only if he or she shows:

Repudiatory breach

There is no rule of law for deciding whether a particular set of facts constitutes a repudiatory breach of contract by an employer. One situation that does amount to such a breach is where an employer persistently tries to vary an employee's working conditions with a view to getting rid of him or her or varying those conditions. That is a breach of the implied contractual term that the employer will not, without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. By attempting to make the employee's life so uncomfortable that he or she resigns or accepts the revised terms and conditions of employment, the employer "squeezes out" the employee (Woods v WM Car Services (Peterborough) Ltd).

The imposition of a unilateral reduction in an employee's "agreed remuneration" also amounts to a repudiatory breach of contract by an employer (Rigby v Ferodo Ltd). So does its requiring an employee to work where he or she cannot be required to (Bass Leisure Ltd v Thomas), or its insistence that an employee work hours which he or she is not obliged to (Derby City Council v Marshall). But where an employer merely introduces a workplace rule for a legitimate purpose, such as a smoking ban, the fact that it bears heavily on a particular employee because he or she cannot comply with it does not in itself justify an inference that its introduction amounts to a repudiatory breach of contract by the employer (Dryden v Greater Glasgow Health Board).

Any unilateral variation of a contract of employment by the employer that is within the scope of the contract cannot constitute a breach of contract by the employer, repudiatory or otherwise, even if it makes the employee financially worse off. For example, in Spafax Ltd v Harrison, the Court of Appeal held that the company was entitled to instruct one of its salesmen to use a different type of sales van and, as an indirect result of that, temporarily to reduce his commission earnings as his sales declined. Whether that was ill-advised or not, the company was not contractually obliged to continue to allow him to use a particular type of sales van if he wanted to, or to earn a minimum level of commission.

If there is a genuine dispute between the parties to a contract of employment about whether a term of it allows the employer unilaterally to vary it, then there is no repudiatory breach of contract by the employer if it merely argues its own point of view. But there may be such a breach if the employer insists on a genuine but mistaken view of its rights under the contract. Whether or not there is a repudiatory breach depends on the facts and consequences of the employer's actions (Financial Techniques (Planning Services) Ltd v Hughes). On the facts in Hughes, the Court of Appeal held that it was not an anticipatory breach of contract for the employer incorrectly to insist that it had a right to withhold part of the commission earned by Mr Hughes under a profit-sharing scheme. It was also not a breach, said the Court, for the employer wrongly to assert that the scheme did not create legal rights but that payments were at its discretion.

Unfair constructive dismissal

Where the employee was constructively dismissed, he or she will succeed in a claim for wrongful dismissal (which may be brought either in a civil court or in an industrial tribunal). And the dismissal will also be held to be unfair unless:

A constructive dismissal is more likely to be unfair than fair, but it is not necessarily unfair. In Industrial Rubber Products v Gillon, for example, a machine operator resigned and claimed constructive dismissal after his employer proposed to reduce his basic rate of pay by £1.47 per week. The EAT held that he was constructively dismissed, taking the view that a unilateral reduction in the basic rate of pay "even for good reasons and to a relatively small extent" was a repudiatory breach of contract. But the EAT also held that the dismissal was fair. The reason for the pay-cut was the situation which the employer found itself in following its inadvertent breach of government pay policy, by paying the employee in excess of the rate for the job allowed by the policy, and the Department of Employment's threat to withdraw statutory financial aid if it did not rectify the position. That was SOSR, and the employer had explained its situation to the employee and tried to rectify the position with the minimum possible effect so far as he was concerned.

Note: A detailed analysis of the remedies for unfair dismissal and wrongful dismissal is outside the scope of this article. The principles governing awards of damages for wrongful dismissal will be discussed at length in a future issue, but note that the maximum that an industrial tribunal can award in respect of any such claim (or in respect of any number of claims relating to the same contract) is currently £25,000.

Consequences of unilaterally imposing changes: main points to note

"Collective" unilateral changes: the duty to consult

Where an employer is proposing to dismiss, and to offer to re-engage under new contracts of employment on different terms, 20 or more employees at one establishment within 90 days or fewer, the employer may have to consult "appropriate representatives" (that is, the employees' elected representatives or, if the employees are of a description in respect of which a trade union is recognised by the employer, the union's representatives) in accordance with s.188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (the TULR(C)A) as amended by the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1995 (see Consultation on redundancies and business transfers).

The duty to consult arises where the employer is proposing to dismiss any of the employees "for a reason not related to the individual concerned or for a number of reasons all of which are not so related" (s.195(1) of the TULR(C)A). There is a presumption that a dismissal (or proposed dismissal) is by reason of redundancy as defined, unless the employer proves the contrary (s.195(3) of the TULR(C)A). As yet, there is no case law on whether or when an employee's refusal to agree to a variation of his or her contract of employment constitutes a reason "unrelated" to him or her.

Whether or not the duty to consult arises where the employer is proposing unilaterally to vary the employees' contracts of employment as a fait accompli is more open to question. On the one hand, there is a real risk that the employees may resign and claim constructive dismissal. On the other hand, the employer is less likely to be treated as proposing to (constructively) dismiss them (see Consultation on redundancies and business transfers).

Equal pay claims following unilateral changes

An employer's unilateral imposition of changes to its employees' terms and conditions of employment may give rise to claims by women or men under the Equal Pay Act 1970 (the EqPA). (We noted the impact of the EqPA, insofar as a variation or rescission of a contract of employment is concerned, in part 1 of this series.)

In Ratcliffe and others v North Yorkshire County Council, for example, three women employed by the council to serve school meals were dismissed and re-engaged by a direct services organisation (DSO) set up by the council for the purpose of tendering for its school meals service (which it was obliged by the Local Government Act 1988 to put out to competitive tendering). But they were paid less than they had been receiving, because the DSO had to compete with commercial caterers which paid their female staff less than the council did. Meanwhile, men employed by the council whose work had been rated as equivalent to theirs continued to be paid broadly what they had been receiving.

An industrial tribunal upheld the women's claims under the EqPA, finding that the council had failed to show that the difference in pay was genuinely due to a material factor which was not the difference of sex in accordance with s.1(3) of the EqPA. The EAT then allowed an appeal to the Court of Appeal, which reversed the tribunal's finding, but that was restored by the House of Lords. The fact was that the DSO paid the women less than men engaged on work rated as equivalent. And the women could not have found other suitable work, and were obliged to take the wages offered if they were to continue with this work. To reduce the women's wages below that of their male comparators was the very kind of discrimination in relation to pay which the EqPA sought to remove.

As we will explain in part 3 of this series, an employer's unilateral imposition of changes to its employees' terms and conditions of employment may also involve sex or race discrimination against one or more of them contrary to the Sex Discrimination Act 1975 or the Race Relations Act 1976.

CASE LIST

Air Canada v Lee [1978] IRLR 392

American Cyanamid Co v Ethicon Ltd [1975] 1 All ER 504

Amos and others v Max-Arc Ltd [1973] IRLR 285

Banerjee v City and East London Area Health Authority [1979] IRLR 147

Bashir v Brillo Manufacturing Co [1979] IRLR 295

Bass Leisure Ltd v Thomas [1994] IRLR 104

Bliss v South East Thames Regional Health Authority [1985] IRLR 308

Brandon and another v Murphy Bros [1983] IRLR 54

Bruce and others v Wiggins Teape (Stationery) Ltd [1994] IRLR 536

Cambridge & District Co-operative Society Ltd v Ruse [1993] IRLR 156

Catamaran Cruisers Ltd v Williams and others [1994] IRLR 386

Chapman and others v Goonvean and Rostowrack China Clay Co Ltd [1972] IRLR 124

Cresswell and others v Board of Inland Revenue [1984] IRLR 190

Dacorum Borough Council v Eldridge and another 30.5.90 EAT 608/89

Deeley v British Rail Engineering Ltd [1980] IRLR 147

Derby City Council v Marshall [1979] IRLR 261

Dryden v Greater Glasgow Health Board [1992] IRLR 469

Ebbw Vale Steel, Iron & Coal Co v Tew (1935) 79 SJ 593

Financial Techniques (Planning Services) Ltd v Hughes [1981] IRLR 32

Genower v Ealing, Hammersmith and Hounslow Area Health Authority [1980] IRLR 297

Hollister v The National Farmers' Union [1979] IRLR 238

Hughes and others v London Borough of Southwark [1988] IRLR 55

Industrial Rubber Products v Gillon [1977] IRLR 389

James C Watson & Co Ltd v Jacobson 12.1.95 Court of Session

Johnson and another v Nottinghamshire Combined Police Authority [1974] IRLR 20

Jones v Associated Tunnelling Co Ltd [1981] IRLR 477

Ladbroke Courage Holidays v Asten [1981] IRLR 59

London Borough of Redbridge v Fishman [1978] IRLR 69

McGibbon and another v OIL Ltd 19.12.94 (S)EAT 537/94

MacPherson v London Borough of Lambeth [1988] IRLR 470

Marriott v Oxford and District Co-operative Society Ltd (No.2) [1969] 3 All ER 1126

Murphy v Epsom College [1984] IRLR 271

National Coal Board v Galley [1958] 1 All ER 91

Nelson v BBC [1977] IRLR 148

North Riding Garages Ltd v Butterwick [1967] 1 All ER 644

O'Grady v FP Financial Management Group Services Ltd 9.11.95 EAT 1161/94

Parkinson v March Consulting Ltd 9.8.95 EAT 776/94

Pauls Agriculture Ltd v Butler 8.9.94 EAT 741/920

Ratcliffe and others v North Yorkshire County Council [1995] IRLR 439

Richmond Precision Engineering Ltd v Pearce [1985] IRLR 179

Rigby v Ferodo Ltd [1987] IRLR 516

RS Components Ltd v Irwin [1973] IRLR 239

St John of God (Care Services) Ltd v Brooks and others [1992] IRLR 546

Secretary of State for Employment v ASLEF and others (No.2) [1972] ICR 19

Selfridge Ltd v Wayne and others 10.5.95 EAT 486/94

Shields Furniture Ltd v Goff and another [1973] ICR 187

Simmons v Hoover Ltd [1976] IRLR 266

Spafax Ltd v Harrison [1980] IRLR 442

Turvey and others v C W Cheyney & Son Ltd [1979] IRLR 105

Wallace v E J Guy Ltd [1973] IRLR 175

WE Cox Toner (International) Ltd v Crook [1981] IRLR 443

Woods v WM Car Services (Peterborough) Ltd [1981] IRLR 347 and [1982] IRLR 413