Changing Terms and Conditions of Employment

The recently decided case of Darby & Another v Law Society of England and Wales (2008) gives cautionary advice to employers wishing to change terms and conditions of employment.

Summary

A change to an employee’s terms and conditions of employment may result in an employee being deemed as 'dismissed' leaving employers open to a risk of an unfair dismissal claim.

Facts

Mr Darby and his colleague were senior employees at the Law Society. Each had a term in their contracts of employment which entitled them to a lease car. However, following an equal pay audit, they were told that the benefit of a lease car would be withdrawn.

Correspondence passed between the employees and their employer resulting in the employees commencing grievance proceedings against their employer.

Finally, their employers gave them an ultimatum: either agree the variation of the original terms and conditions by consent or be dismissed and potentially re-engaged on new terms excluding the provision of the car.

They eventually signed up to the new terms which did not include provision for a leased car. However, the employees also brought claims for unfair dismissal, on the basis that their original contracts of employment had been terminated.

The Tribunal rejected the employee’s claim that they had been dismissed but the decision was appealed by Mr Darby and his colleague to the Employment Appeal Tribunal (EAT).

Were the employees 'dismissed'?

The relevant legal question to be considered was “were the employees dismissed?”.

If they had not been dismissed then there was no basis for an unfair dismissal claim. In this context the term “dismissal” means where the “contract under which he [the employee] is employed is terminated by the employer with or without notice” (s 95(1) of the Employment Rights Act 1996).

Therefore, was the act of the employer’s ultimatum to the employees to end their original contracts of employment tantamount to giving actual notice to terminate employment?

The decision

The Employment Appeal Tribunal held that the correspondence passing between the employer and the employees following its decision to remove the benefit, did amount to notice of termination to end the original contracts of employment.

Those contracts of employment were terminated, so as a matter of a law the employees had, in fact, been dismissed.

As there had been a ‘dismissal’, the employees could bring claims for unfair dismissal.

The claim has been sent back to the Employment Tribunal to consider the fairness of the dismissals and if unfair, what remedy the employees’ should receive bearing in mind they are still working for their employer.

Advice to employers

Care should be taken when offering new terms to current employees to avoid any potential unfair dismissal claim.

The correct approach is to consider whether documents sent to the employee explaining their options to the new terms and conditions constitute notice to terminate the current contract with the prospect of re-engagement or whether they constitute an invitation merely to agree a consensual variation with a threat of dismissal if such consensual variation is not achieved.

In the case above, the Law Society used such wording as “the purpose of this letter is to give you notice of termination of your present terms of employment…” and spoke of “re-engagement”. Such obvious statements indicated an intention on the part of the employer to give notice of termination.

Offering a new contract of employment with improved terms and conditions to take into account the lost benefit, is an advantage to any award of compensation for unfair dismissal. It is difficult to see an Employment Tribunal awarding compensation where an employer offered improved terms buying out the benefit or where, as in this case, the employees accepted the new contracts.

It may also be possible for employers to simply roll out new contracts of employment to new joiners only and allow the new terms to filter through an organisation over time. However, employers should be careful that this does not lead to disparity of terms between the sexes. Another option may be to consider offering new terms on a promotion, thereby linking new terms to that role, rather than a blanket change to terms.

In the current economic climate where employers may be looking to tighten their belts, many may look at changing their current benefit packages. However, great care needs to be taken with the wording and tone of any correspondence between employer and employee as regards a change of terms of employment. If giving employees a stark choice of “accept or be sacked”, many more employers may face claims of unfair dismissal.

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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