The national living wage has made headlines for several weeks but not always for the right reasons. What was meant to be a positive move by the government, has resulted in negative publicity for some organisations which have responded by changing employee contracts to try and save money.
B&Q has undoubtedly suffered the most after the retailer increased staff’s basic pay to a minimum of £7.66 per hour, but proposed to reduce double time for working bank holidays and remove both time and a half pay for working Sundays and a bonus equating to 6 percent of annual salary. Staff were told that if they did not consent to the changes they would be dismissed and re-engaged on the new terms, resulting in nearly 136,000 people signing a petition against the planned cuts.
Options for employers
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As highlighted by the B&Q saga, reducing pay and benefits for staff is not a straightforward process.
An employment contract can only be varied with the consent of both parties to that agreement. If an employer chooses to implement variations to employment contracts they have several options. The first and simplest option is to obtain the employee’s consent to any changes. If they agree, they have created a new contractual agreement going forward which is binding on both parties.
Alternatively, some employers may implement unilateral changes to terms and conditions without the employee’s consent, but they will be at risk of committing a breach of the original terms and conditions. Employees in this situation could work under protest or resign and claim constructive unfair dismissal, so unsurprisingly most organisations are reluctant to adopt this approach.
Given the risks and uncertainty of making unilateral changes, employers generally prefer to adopt a third option which is to dismiss the employee and then immediately offer them re-engagement on new terms and conditions. The reason for the termination is referred to as “Some Other Substantial Reason” which is the general catch-all reason for dismissals, which do not fall under the usual categories such as conduct and redundancy. Although this approach is not risk free, it is often seen as the best option in the absence of an employee’s consent.
Employment tribunals
There is an abundance of case law on dismissal and re-engagement but the employment tribunals have held that employers only need a sound business reason for the changes. Providing the changes are not imposed for arbitrary or capricious reasons then any dismissals are usually considered fair.
To determine whether a dismissal is fair the employment tribunal must carry out a balancing act between the reasonableness of the employer in dismissing the employee and the reasonableness of the employee in refusing to accept the change. It is possible for a tribunal to accept that an employee was reasonable in their refusal to accept certain changes, but then go on to find that those changes were reasonably imposed by the employer and that the dismissal was fair – for employers, consultation with staff is key to help establish this.
Weigh up the costs
Although employers may fairly impose less favourable changes to terms and conditions via dismissal and re-engagement, they should give considerable thought before embarking on such a process. Even if they can push the changes through by adopting a process of dismissal and re-engagement, there is a much bigger picture to think about. Employers must not only consider the legality of such changes, but how these will affect staff morale and the possibility of reputational damage. As highlighted by B&Q, these consequences could significantly outweigh any cost savings achieved by the changes in terms and conditions.
Ronnie Tong is an employment partner at Devonshires Solicitors.
