Changing Employment Terms: Employer Risks and Practical Steps

Changing employment terms can create legal risk for employers if the process is handled badly or if changes are imposed without proper agreement.

Employment contracts are legally binding agreements. They set out important terms such as pay, hours, duties, place of work, notice periods, benefits and working arrangements. In most cases, an employer should not simply change those terms without the employee’s agreement.

There are many reasons why an employer may want to change employment terms. A business may need to reduce costs, reorganise working patterns, update outdated contracts, introduce new technology, change reporting lines, or bring staff terms into line across the organisation.

The business reason may be perfectly sensible. The risk usually comes from the way the change is handled.

Why changing employment terms needs care

Changing employment terms is not just an administrative task. It can affect the employee’s pay, working hours, job security, family arrangements and daily working life.

If an employer handles the process badly, the employee may complain, raise a grievance, refuse the change, work under protest, resign and claim constructive dismissal, or bring other legal claims depending on the circumstances.

Common problem areas include:

• reducing pay or benefits
• changing hours of work
• changing work location
• altering duties or seniority
• changing commission, bonus or overtime arrangements
• removing flexibility previously agreed
• changing shift patterns
• introducing new restrictive covenants

The more significant the change, the more careful the employer needs to be.

Check whether a contract change is really needed

Before proposing a change, employers should be clear about the problem they are trying to solve. Acas guidance says employers should consider what issue they are trying to address and whether a contract change is definitely needed.

That is an important first step. Sometimes the business can achieve the same result without changing the employment contract. For example, a workplace problem might be solved through better management, updated procedures, training, clearer rotas, or improved communication.

If a contract change is needed, the employer should be able to explain why. A vague statement such as “the business needs more flexibility” may not be enough. The employer should identify the practical reason, the proposed change, and the effect on affected employees.

Review the existing contract before proposing changes

Employers should check the existing contract before making proposals. The contract may already include relevant clauses dealing with duties, place of work, working hours, flexibility, mobility, pay reviews or business reorganisation.

However, employers should be careful with flexibility clauses. A clause that appears to allow changes does not give unlimited power to alter terms however the employer wishes. Acas guidance warns that employers must use flexibility clauses reasonably and should inform, consult and give reasonable notice.

If the contract is unclear, outdated or inconsistent with how the employee actually works, the employer should take extra care. In some cases, terms may also have developed through custom and practice, even if they are not written down clearly.

For help checking existing terms, employers may need advice on contracts of employment.

Consult employees before changing employment terms

Consultation is one of the most important parts of changing employment terms. Employers should explain the proposed change, the reason for it, who is affected, when the change would take effect, and what alternatives have been considered.

Consultation should be genuine. That means employees should have a proper opportunity to ask questions, raise concerns and suggest alternatives before a final decision is made.

A rushed announcement is not the same as consultation. Nor is telling employees that the decision has already been made and that they must accept the new terms.

Depending on the circumstances, consultation may involve individual meetings, group meetings, employee representatives, trade unions, written proposals, follow-up discussions and time for employees to consider the change.

Get agreement wherever possible

In most cases, changing employment terms should be done by agreement. Government guidance states that employers and employees usually both need to agree to contract changes.

Agreement may be straightforward where the change is minor or beneficial. For example, an employee may welcome a change to hybrid working, revised hours or updated benefits.

However, agreement can be harder where the change is less favourable, such as reduced pay, longer hours, fewer benefits or a less convenient workplace location.

Employers should keep a clear record of the employee’s agreement. Ideally, the agreed change should be confirmed in writing and signed or clearly accepted by the employee.

Put agreed changes in writing

Once changes are agreed, employers should confirm them in writing. This helps prevent later disputes about what was agreed and when the new terms started.

Where the change affects the employee’s main written terms, the employer must put the change in writing within one month of the change. This may be done by letter, email, contract variation letter or updated contract.

The written confirmation should usually include:

• the term being changed
• the previous arrangement
• the new arrangement
• the date the change starts
• whether the change is permanent or temporary
• any review date
• any effect on pay, hours, benefits or duties

Employers should avoid relying on informal conversations alone. If a dispute later arises, clear written records can be very important.

For formal variations, employers may also need advice on changing contracts of employment.

What if employees do not agree on Changing Employment Terms?

If employees do not agree to the proposed change, the employer should not ignore the objection. It should consider why agreement has not been reached and whether the proposal can be adjusted.

Possible next steps may include further consultation, offering a trial period, phasing in the change, changing the proposal, limiting the change to some roles, or agreeing a different arrangement with affected employees.

Where agreement still cannot be reached, employers may consider more serious options. These can include imposing the change or, in some cases, dismissal and re-engagement on new terms. These options carry significant legal risk and should not be used casually.

Dismissal and re-engagement, often called “fire and rehire”, is particularly sensitive. Employers should avoid using it as a threat and should take advice before considering it.

Risks of imposing changes

Imposing a change without agreement can expose the employer to claims. The employee may argue that the employer has breached the contract. They may work under protest, claim unlawful deductions from wages, resign and claim constructive dismissal, or bring other claims depending on the facts.

The risk is higher where the change affects pay, hours, status, location, duties or long-standing benefits.

Employers should also be alert to discrimination risks. A change may affect some employees more than others. For example, a change to hours, location or shift patterns may have a particular impact on employees with childcare responsibilities, disabled employees, pregnant employees, older workers or employees with religious commitments.

That does not mean changes can never be made. It does mean employers should consider the impact carefully and document the business reasons for the proposal.

Changing Employment Terms – A practical process for employers

A sensible process for changing employment terms usually includes these steps:

• identify the business reason for the proposed change
• check the existing contract and any relevant policies
• consider whether a contract change is necessary
• identify which employees are affected
• prepare a clear written proposal
• consult affected employees properly
• consider objections and alternatives
• seek agreement wherever possible
• confirm agreed changes in writing
• take advice before imposing changes or considering dismissal and re-engagement

This process does not remove all risk, but it gives the employer a much stronger position if the change is challenged.

Keeping employment documents up to date

Changing employment terms is often a sign that wider employment documents also need attention. If contracts are old, inconsistent or unclear, the employer may also need to update staff policies, handbooks and workplace procedures.

An employment handbook can help set out workplace rules and procedures separately from the contractual terms. This can make future updates easier, provided the documents are drafted properly and the employer is clear about what is contractual and what is policy guidance.

Employers should avoid mixing everything into one document without understanding the consequences. Some terms should be contractual. Others may be better placed in non-contractual policies that can be reviewed and updated more easily.

Getting advice before making changes

Changing employment terms can be straightforward where the change is minor, beneficial and agreed. It becomes more difficult where the change is unpopular, affects pay or hours, or is being made across a group of employees.

Employers should take advice before making significant changes, especially where employees are likely to object or where dismissal and re-engagement is being considered.

EBS Law advises employers on employment contracts, changing contracts of employment, workplace policies and practical steps to reduce legal risk. If you are planning changes to employee terms, getting advice early can help avoid disputes, grievances and tribunal claims.

For practical help changing employee terms, visit our changing contracts of employment page. For wider support, EBS Law also provides employment law advice for employers across a full range of workplace issues.