Varying contracts: case study 1

Jenny Wotherspoon of Osborne Clarke continues a series of articles on varying contracts of employment with a case study that looks at a situation in which an employer wishes to vary its employees' contracts to accommodate a new shift system to help it meet customer demand. 

Goods-to-buy sells novelty gifts online and through retail outlets. It has a small customer services department of 10 employees who deal with customer queries and complaints, which are primarily made by telephone. The employees work from 9am to 5pm, Monday to Friday. Customer feedback and complaints indicate that the company's level of service could be improved if its customer services department was available to take calls over a longer period. Customers have complained that they cannot contact Goods-to-buy when they want to. Further, many of Goods-to-buy's competitors' customer services departments are open later in the evening. Therefore, the management team at Goods-to-buy decides to increase the opening hours of its customer services department to from 8am to 8pm. It agrees that the best way forward is for the company to try to introduce a shift system for the 10 employees in the department, so that the longer opening hours can be covered. However, the management is unsure whether or not the customer services employees' contractual hours can be changed to accommodate a new shift system.

What should the company do next?

The company could check whether or not the employees' contracts include a variation clause giving it the flexibility to make changes to their terms without their consent. However, even if there is a variation clause, the company must treat it with care as variation clauses are rarely enforced by employment tribunals and tend to be narrowly construed. As the changes proposed by Goods-to-buy are likely to be detrimental to the affected employees, the safest approach is for it to seek consent to the proposed change to terms, irrespective of whether or not there is a variation clause in the contract. It should ensure that it obtains employees' agreement voluntarily and without duress.

Goods-to-buy should also investigate whether or not there are alternatives to varying terms. For example, it might be possible for it to cover the extended evening hours by recruiting part-time staff.

Attempts to recruit extra staff to cover the evening hours fail, and the management team establishes that there is no flexibility in Goods-to-buy's employment contracts allowing it to change hours or work. The company decides to try to obtain the customer services employees' agreement to a shift system with two shifts (namely an early shift from 8am to 4pm and a late shift from 12pm to 8pm), with five employees working each shift alternating on a weekly basis.

What process should Goods-to-buy follow?

Goods-to-buy should consult with the affected employees at an early stage and keep an open mind. It should describe the change to employment terms as a "proposal" and not make a final decision until consultation has taken place. During the consultation process it should:

  • write to the affected employees setting out the proposals;
  • explain why the proposed changes to contracts are necessary;
  • meet with the affected employees to discuss the proposals in more detail;
  • consult with each of the employees on an individual basis; and
  • consider and respond to concerns or comments raised by employees.

Does Goods-to-buy need to consider collective consultation?

There is no need for Goods-to-buy to consider collective consultation because fewer than 20 employees are affected by the proposal. If 20 or more employees were likely to be affected, the company would need to undertake collective consultation to cover the potential eventuality of it being unable to obtain the employees' express agreement and having to change their terms through a process of termination and re-engagement (see below).

Goods-to-buy consults with individual employees about the proposal to introduce a shift system but is unable to obtain the agreement of any of the members of the team. Therefore, the company offers the affected employees a small pay rise in return for their agreement to the shift system. Seven employees provide their consent in writing by signing and returning their agreement to the company's written proposal. The company issues an amendment to their written statements. However, three employees continue to resist the change to their working hours.

Can Goods-to-buy impose the changes?

No. An employer that imposes a contractual change without the employee's consent will be acting in breach of his or her contract and, if the breach is fundamental, the employee will have a potential claim for constructive unfair dismissal (provided that he or she has at least one year's service). When faced with a situation in which it cannot achieve agreement to a change to terms, the employer may be left with no option but to dismiss the employee and re-engage him or her on new terms.

Before dismissing an employee in these circumstances, the employer should check that there are no extenuating circumstances justifying the employee's refusal to accept the change that could render the employer vulnerable to a successful claim of unlawful discrimination and/or unfair dismissal if it dismisses the employee (for example, health problems or caring responsibilities that would make it difficult for the employee to accommodate the proposed contractual change).

Goods-to-buy continues the consultation process, eventually warning the three employees that if they do not agree to the contractual changes within a set deadline it will contemplate serving a notice of termination on them, followed by an offer of re-engagement on the new terms.

The employees continue to refuse to accept the change to their terms and conditions of employment. None of them offers a reason that justifies refusal. Therefore, Goods-to-buy decides to terminate their employment and offer each of them continued employment under the new terms, which include the shift pattern of work.

What process should Goods-to-buy follow?

Goods-to-buy should:

  • follow a fair dismissal procedure, which reflects the procedure outlined in the Acas code of practice on disciplinary and grievance procedures (PDF format, 1.58MB) (on the Acas website), and meet with the employee to discuss the reasons for the termination, confirm the decision in writing and offer the employee a right of appeal;
  • serve contractual notice (or make a payment in lieu of notice, if authorised to do so by the contract) to avoid a claim for wrongful dismissal; and
  • write to the three employees setting out the offer of re-engagement, the terms on which the offer is made and how long it will remain open for them to accept.

When they receive their notice of termination, two employees decide to agree to the new terms and duly sign the amendments to their written statements of employment that Goods-to-buy has enclosed with the notice of termination and offer of re-engagement.

One employee continues to refuse to sign up to the new terms of employment. He is unable to bring a claim for wrongful dismissal because he has been served with the requisite notice period under his contract of employment. However, he decides to bring an unfair dismissal claim.

What must Goods-to-buy establish to be able to defend the claim?

To be able successfully to defend the employee's claim for unfair dismissal, Goods-to-buy must be able to show that:

  • it had a potentially fair reason for dismissing the employee (likely to be the potentially fair "some other substantial reason");
  • and

  • there were sound business reasons for making the contractual change and dismissal was reasonable in circumstances where the employee refused to accept the change.

The employment tribunal will also take into account whether or not:

  • Goods-to-buy followed a fair dismissal procedure;
  • Goods-to-buy properly consulted with the employee regarding the change and took into account the effect of the change on him;
  • the majority of employees accepted the change; and
  • a trade union or employee association objected to the change.

What compensation could the employment tribunal award if the employee's claim is successful?

If the employment tribunal finds in the employee's favour it may award compensation consisting of a basic award calculated according to his age and length of service and a compensatory award capped at £65,300, based on loss of future earnings (see Compensation in the Unfair dismissal: rights on termination section of the XpertHR employment law manual).

The tribunal may reduce the compensatory award if Goods-to-buy can show that the employee failed to mitigate his losses (which could include his failure to accept the company's offer of re-employment on new terms). When determining whether or not such a reduction is appropriate, the tribunal may take into account the extent of Goods-to-buy's consultation process prior to dismissal, and its overall conduct.

Next week's article will be a second case study around varying contractual terms, and will be published on 23 August.

Jenny Wotherspoon (jenny.wotherspoon@osborneclarke.com) is an associate with the employment team at Osborne Clarke.

Further information on Osborne Clarke can be accessed at www.osborneclarke.com.