Article for BALC
Employment Matters – an exploration of good practice for councils with people management
responsibilities prepared by Bethan Osborne, Employment and HR Consultant. 24NOV14
Variations of contract
In the last newsletter the topic of ‘contracts of employment’ was covered. This month we shall be
looking at how an existing contract of employment can be varied, what the law permits an employer
to do and what risks or potential pitfalls could cause a council problems when seeking a contractual
change.
Can a contract of employment be changed?
Yes it can. If it could not be changed then no-one would be able to receive a pay-rise or alteration in
hours. A variation in an employment contract is essentially an agreement by the parties to the
contract that some terms or conditions will change whilst allowing the continuity of the employment
relationship to be preserved.
What should our council do if we want to alter an employment contract?
The council needs to establish a business reason for the change – this could do with workloads
changing, be as a result of job evaluation or a restructuring or be at the request of the employee
who may have applied for flexible working arrangements. The council also needs to ensure that the
potential change is reasonable and fair and that it has explored alternatives before deciding on the
variation which is to take place. Whilst variations can be verbal it is advisable to ensure the change
is in writing.
What might make a variation unlawful?
If the change proposed is not fair or reasonable, if it unreasonably targets or discriminates against
the job-holder or if based on a whim rather than a sound business reason then it may be considered
inappropriate and potentially unlawful.
How do we avoid creating an unlawful or unreasonable variation?
Consultation if the key to any successful variation of contract. If the employee who may be affected
is spoken to, communicated with and allowed to add his or her views into the change process then
there is a much greater chance of all parties being satisfied with the end result. A failure to consult
is likely to be a big factor in resistance of a change and a finding of unfair dismissal if the complaint
reaches an Employment Tribunal.
What process should we adopt then?
Establishing a business need is the first step and this may be supported by research and investigation
which is shared with the council. Exploring alternatives, costs and implications on service levels is
the next step and at that point some consultation with those affected would be prudent and may
even give rise to fresh ideas or other relevant input to the decision-making. Once a decision is made
by the council this should become a formal, minuted resolution at which point notice of the change
should be conveyed to those staff members affected.
How do we know how much notice to give?
The notice required will be the greater of either a) the notice period recorded in the existing
contract of employment typically 1 month or 3 months OR b) the notice required under law which is
a week’s notice for each completed year of service to a maximum of 12 weeks for 12+ years’ service.
This means that contractual variations should not be rushed as you will need to allow time to
research, propose, consult and give notice of changes to employees.
Can notice be reduced?
Yes. Both parties can agree to reduce or waive the notice requirement but the decision has to be
mutual. This is typical when a contract is being enhanced to the employee’s advantage e.g. when
there is pay-rise and s/he will happily waive a 3 months’ notice period to be awarded the
enhancement straightaway.
What if the employee refuses to change?
If, following consultation about the proposed change(s), the employee declines to agree to the
variation in writing s/he can decide to proceed down a number of routes.
A) the employee could refuse to accept the change yet still turn up for work and work to the newly
introduced terms and condition thus, by implication, accepting the change.
B) the employee could conclude that the employer has breached the contract and consider
him/herself to have been dismissed. This is what is called a ‘constructive dismissal’ at an
Employment Tribunal i.e. the employer has acted in a way so as to fundamentally breach the existing
contract of employment to the extent that the employment relationship no longer exists. It will be
for a Tribunal to decide whether the employee is justified in reaching this decision and whether the
employer has, indeed, acted unreasonably. Such a claim is more likely to succeed if the term(s)
altered are fundamental to the employment relationship.
C) the employee could formally decline the new terms and “work under protest” i.e. s/he would
continue to work to the original contractual terms whilst submitting a formal grievance for the
employer to investigate and decide upon. The employee would be entitled under the ACAS Code of
Practice to be offered a Grievance hearing at which s/he would be entitled to be accompanied by a
fellow colleague or trade union representative. The employer would have to arrive at a decision on
the matter and would either have to accede to the employee’s ideas or negotiate some middle way
or would end up imposing a unilateral variation. Both B) and C) could lead to the employer facing a
legal challenge.
What is unilateral variation?
This is when one party decides to change the terms without the other party’s agreement. A change
may be imposed by one of the parties but there are risks that is could lead to an unfair (constructive)
dismissal claim against the employer unless there is evidence that the employer has made efforts to
consult, negotiate and give notice of the change beforehand. Unilateral variations can be effective
where the variation notice has been ignored or rejected by the employee yet when it is imposed the
employee continues to turn up for work and works to the newly imposed terms thus signalling,
through their conduct the acceptance of the new arrangements. Examples of unilateral variations:
pay-rises or promotions, changes arising from a collective agreement to which the parties are signed
up e.g. Green Book changes in the local council sector, actions arising from disciplinary penalties
such as a demotion if that action is allowable under the council’s disciplinary policy, changes for
which flexibility in the existing contract allows e.g. changes to job description contents or location of
work if there is a ‘mobility clause’.
What records should we keep of the variation?
It is best practice to document all research and plans leading up to a proposed change in terms plus
notes of conversations with staff affected and written agreement to contractual changes.
Resolutions need to be recorded in the council’s minutes. When changes are broad it may be best to
reproduce the contract with the new terms highlighted. In more routine cases the variation can be
the subject to a letter addressed to the employee which the employee signs, dates and returns to be
kept on file as a variation to the original terms. The Statement of Written Terms and Particulars
often included within the contract of employment should be updated within two months of the
effective date of the variation.
What is meant by ‘Termination and Re-engagement’?
Rather than unilateral imposition of a variation an alternative strategy for an employer unable to
secure mutual agreement to a change is to bring an employment contract to and end and
immediately re-engage on new contractual terms. This approach has been adopted by some
Principal Authorities facing severe austerity measures. It should not be adopted as a preferred way
in which to effect change as it can lead to significant employee relations issues, a reduction in
morale and engagement and has the potential for risk of legal action for unfair dismissal, denial of
redundancy rights. If there are more than 20 staff involved it invokes the need to follow the Trade
Union and Labour Relations (Consolidation) Act 1992 with regard to consultation and notification
which can carry fines for the employer for non-compliance.
Which laws are involved in variations of contract?
Employment terms are covered by the Employment Rights Act 1996 which establishes the right for
employees with over 2 years’ service to make a claim for unfair (constructive) dismissal to an
Employment Tribunal where compensation can be up to £70k OR one year’s salary (whichever is
lower). A breach of contract claim can also be submitted to a civil court or Employment Tribunal
which carries a penalty of up to £25k. Any reductions in pay could be treated as “unlawful
deductions from wages” which could form a separate Tribunal claim.
Pensions news
Further to the article published in the September 2014 newsletter we have received some helpful
clarification from a County Pensions administrator which helps put in context apparently
contradictory advice within the ‘Being a Good Employer’ guide and rules for auto-enrolment of
pensions.
Town and parish councils can provide a scheme before the staging date but (other than where the
Scheme is the LGPS) can’t contribute to it. Once Councils reach their staging date they need to make
a choice as to what scheme they want to use to fulfil their responsibilities and, whatever scheme is
chosen, they will be able to make an employer contribution to it. The administering authority has no
responsibility to tell town and parish councils what they can and can’t do. The assumption is that it is
the auditor’s role to check whether an employer is doing something they should not be doing."
Please note that ‘Being a Good Employer’ was written in 2010, before the pensions reforms and
auto-enrolment were introduced to the statute book, and is to be revised by NALC and SLCC in the
coming months.
The National Pay Agreement. The Local Government Employers and main unions who are
signatories to the “Green Book” have agreed a settlement on council staff salaries to April 2016.
There are 1.5 million employees affected by this settlement. The agreement is worth an average of
2.35% with some of the lowest paid staff receiving significantly higher pay rises. NALC and SLCC are
preparing an announcement and practical guidance on the matter. Councils with staff at scp5 need
to take immediate action as the existing pay rate is below the new National Minimum Wage level of
£6.50/hour. There will be payments which will need to be included in the December 2014 payroll
and further increases from April 2015.