Statutory Code of Practice on changing employment terms

The draft Code of Practice on changing employment terms for employees was published on 24 January 2023 with a twelve-week consultation period that ended on 18 April 2023. There was very little in the draft Code that diverged from the way institutions have been dealing with the issue of termination and re-engagement, where it becomes necessary.

The key points to note are: –

• The Code will apply where an employer is trying to effect a change to terms and conditions and one of the options, if agreement is not reached, is to terminate employment and offer new terms.
• The guidance in the Code will apply, irrespective of the numbers affected.
• Employers will be expected to follow a step-by-step process of information, consultation, and further consideration before making a final decision.
• Information and consultation is approached as an ongoing process, not a single event.
• Dismissal and re-engagement should be seen as the last resort only if the employer has concluded that there is no reasonable alternative.
• A failure to follow the Code could give rise to an uplift in compensation of up to 25 percent when a successful claim is brought

The scope of the Code

The Code aims to provide practical guidance to employers and employees in situations where an employer considers that it wants to make changes to the contracts of its employees. The Code envisages that if employees do not agree to those changes, their employers might dismiss them and either offer them re-employment on new terms or engage new employees to perform the relevant roles on the new terms.

The Code does not apply where the reason for dismissal is redundancy. The employer is however expected to follow a fair process and may also, depending on the number of employees affected, be required to collectively consult in such situations.

The Code remains applicable, regardless of the number of employees affected, or potentially affected, by the employer’s proposals. This is where it goes beyond the requirement to collectively consult on redundancies as the Code includes, in its step-by-step process, consultation with trade union or employee representatives, even where the proposal is to dismiss and re-engage fewer than twenty employees.

The Code applies regardless of the business objectives pursued by the employer, or the nature of its reasons for seeking changes to the terms or conditions of its employees.

It also points out that an employer must bear in mind all of its legal obligations when changing contractual terms, including those not dealt with in the Code. It gives the example of the need, when there is a recognised trade union, to adhere to any collective bargaining arrangements which are in place before making any offers directly to employees. Failure to do so could give rise to a claim under section 145B of the Trade Union and Labour Relations (Consolidation) Act 1992 (the 1992 Act) prohibiting inducements relating to collective bargaining.

Whilst a failure to follow the Code will not in itself give rise to legal proceedings, it is admissible in evidence before an employment tribunal and must be taken into account where it is relevant to the proceedings.

In addition, if an employee brings one of the claims listed in Schedule A2 to the 1992 Act, the tribunal can increase any award it makes by up to 25 percent if the employer has unreasonably failed to comply with the Code. In cases where it is the employee who has unreasonably failed to comply, the tribunal can also decrease an award by up to 25 percent.

The most obvious claim that can be brought under Schedule A2 to which the Code would apply is that of unfair dismissal.

Consultation related to changing employment terms

Consultation by both parties must be meaningful and conducted in good faith, with the intention of seeking an agreed resolution. The employer should consider whether it has explained clearly its reasons for the changes, should listen carefully to objections raised, and seek to understand the reasons for those objections, as well as the impact of its proposals on employees. It should also consider any alternative proposals which are made and be prepared to engage in a genuine exploration of whether they are workable or will meet the employer’s objectives.

The Code says it is important that the employer is honest and transparent about the fact that it is prepared if negotiations fail and agreement cannot be reached, to unilaterally impose changes or to dismiss employees in order to force changes through. However, a threat of dismissal should never be used only as a negotiating tactic where the employer is not actually contemplating dismissal as a means of achieving its objectives.

There is, unlike the redundancy collective consultation, no minimum period over which the Code suggests consultation should take place as it will “depend upon the circumstances” but it says that a longer consultation period is likely to allow for a deeper understanding of the requirements for the proposals and the nature and intensity of any objections.

What is the outcome if employees agree to change their employment terms?

The employer should put the changes in writing, setting out clearly what the amendments are and when they will commence. Even if the new terms have been agreed with the trade union, the employer should write to each employee affected, setting out the new terms.

The Code says it is good practice, following the changes, to maintain good communication with the affected employees over a period of time as they adapt to the new terms, to invite feedback about the changes and consider what might be done to mitigate any negative impacts.

Unilateral imposition of new terms if employees do not agree to changes

If agreement to the proposed new terms is not reached, an option for employers is to go ahead and impose those terms anyway. The Code reminds employers of the potential legal risks this may entail. Employees may: –

• bring a claim for breach of contract or unlawful deduction from wages;
• resign and claim constructive unfair dismissal;
• continue working to the new terms; or
• bring a discrimination claim if they consider that they have suffered some disadvantage that is connected to one or more of the protected characteristics.

These claims are more likely where employees make clear their objection to the imposition.

The Code suggests that an employer who decides to impose new terms unilaterally should share the changes in writing with employees, explain the nature and impact of the changes, and notify them of when these changes will apply, giving as much notice as possible. The employer should still continue to discuss the changes with employees, or their representatives, in a genuine attempt to find agreement.

Given the risk of claims, an employer would normally only seek to unilaterally impose new terms where the employees are not financially worse off as a result of the change. Where the change will leave employees financially worse off, an employer may instead consider dismissal and re-engagement.

Dismissal and re-engagement if new terms have not been agreed

The Code says dismissal and re-engagement should be the last resort and before making this decision, the employer should take some time to re-assess its analysis and again carefully consider: –

• whether it is truly necessary to offer these new terms to its employees in order to achieve its objectives;
• if there are any alternative options, whether revealed by the employer’s own analysis or suggested by employees or their representatives, which could achieve those same objectives; and
• if the changes could have a greater impact on one group of employees who share protected characteristics, compared to others.

Although contractual notice will need to be given, the Code recommends that the employer should consider whether any particular employees might need longer notice in order to make arrangements that might better enable them to accommodate the changes. For example, where the changes involve changes to working hours, some employees may need more time to make changes to childcare arrangements or to plan new journeys to work which can accommodate mobility needs.

It also suggests that if the employer is implementing more than one change to terms, it should consider whether it could have a phased introduction of changes over a longer period of time and whether it might be able to agree to review the changes at a fixed point in the future, perhaps with a view to reconsidering whether it still views those changes to be necessary.

The employer should also consider whether there is any other practical support it might offer to its employees such as relocation assistance, career coaching, or counseling for emotional support.

In a dismissal and re-engagement scenario, the Code again recommends that the employer continues to review the requirement for the imposed changes. It might find that, due to a change in circumstances, it is able to discuss a return to the previous terms, or at least to consider alternative proposals which it was not able to accommodate previously. It is also good practice for the employer to continue to monitor the impact of the imposed changes over time to see if it is able to do anything to ameliorate any negative impact on the employees.

Changing employment terms can be a challenging process for both employers and employees. Feel free to contact our solicitors if you need legal advice about employment terms being changed in your place of work.