Varying Contracts of Employment - It's Not Always as You Think

Posted in : Supplementary Articles ROI on 27 March 2009
Ailbhe Dennehy
A&L Goodbody

According to recent figures published by global consulting firm, Watson Wyatt, 30% of 58 Irish organisations surveyed have opted to implement a pay freeze. A further 44% of those surveyed are considering a review of their current pension arrangements and 20% are reviewing their healthcare arrangements. These statistics have been reflected in the response to the new national wage agreement whereby a large proportion of employers are claiming an inability to pay, requesting both extensions to pay freezes and cost-offsetting measures.

In light of the new economic reality, where do employees stand vis-à-vis their terms and conditions of employment, and to what extent are employers entitled to unilaterally vary such terms and conditions?


TERMS AND CONDITIONS

An employee’s terms and conditions of employment may be a mix of those terms that are clearly set out in his/her contract, those implied by custom and practice and the employer’s duty to act reasonably, those which are incorporated through collective agreements and those which derive from statute (such as the right to minimum wage or annual leave) which apply automatically.


AMENDING TERMS AND CONDITIONS OF EMPLOYMENT - The practice in the past

Where an employment contract does not expressly enable the employer to vary the terms of employment, employers may either:

1. Obtain the employee’s express agreement to the change;
2. Terminate the employee’s employment on due notice and offer re-engagement on new terms; or
3. Attempt to impose the change unilaterally.

Unilateral variation of an employee’s terms and conditions of employment to the employee’s detriment may give rise to:

1. A claim of constructive dismissal under the Unfair Dismissal Acts 1977-2007 or at common law;
2. A claim for damages for breach of contract;
3. A claim in respect of an unlawful deduction under the Payment of Wages Act 1991;
4. A “trade dispute” under the Industrial Relations Acts 1946-2004,
5. Industrial relations issues, and
6. Injunctive proceedings to prevent the unilateral variation.

What is contractual, and not merely a work practice, may not be varied unilaterally. Such variation must be agreed between the parties regardless of whether the term is express or implied, tacit or by acquiescence (Cowey v Liberian Operations Ltd [1996] 2 Lloyd’s Rep. 45). Consequently, in practice, where an element of the remuneration package is withdrawn – for instance removing bonuses – the approach in the past has been to offer an alternative benefit or compensation in order to avoid disputes.

In practice, whether or not an employee benefit constitutes a term or condition of employment may be somewhat academic if changing it is likely to give rise to industrial relations issues and human resources problems. In Neville v Waters Munster Glass Ltd RP558/2003, the claimant, having refused to accept a reduction in salary and to work a reduced three day week, was consequently made redundant. Although the claimant argued that he had been unfairly dismissed, the tribunal held that a genuine redundancy situation existed.

It is clear from a UK case, GAP Personnel Franchises Ltd v Robinson UKEAT/0342/07, that where employees do not accept a unilateral variation by the employer, especially one that has an immediate impact (e.g. the reduction in pay or benefits), they should make it clear, preferably in writing, that they do not accept the change and are working under protest. Otherwise the employee may eventually be held to have implicitly accepted the change.

However, in Robinson v Tescom Corporation UKEAT/0567/07, it was held that an employee who agreed to work under new terms under protest but subsequently insisted on working on his old terms, had not been unfairly dismissed. Having initially agreed to work under the new terms, the employee could not subsequently refuse to do so.


VARIATION IN A RECESSION

With unemployment rising to a rate of 8.3% and FÁS forecasting that this rate will exceed 12% during 2009, resistance to changing terms and conditions is low. There has been no change in the legal requirement to obtain employee consent for such variation, however many employees are accepting paycuts where they are being implemented in a genuine effort to avoid job losses and to try to ensure the employer’s survival.

However, it is significant to note that workers opting to accept a paycut, in order to avoid the threat of job losses, may find themselves being made redundant if the employer is ultimately forced to close down. The statutory redundancy payment is based on the employee’s current wage which will mean a lower statutory severance package than the employee would have received on the previous higher wage.


PRACTICAL POINTS

In the course of varying terms and conditions employers should:

1. Maintain clear communication with employees;
2. Provide employees with reasonable notice of any variation to terms and conditions;
3. Be able to explain why the change is necessary and inform the employees of the alternative (i.e. a more formal re-structuring and ultimately possible job losses);
4. Consider whether the new terms can be imposed in stages as opposed to implementing all variations at once. This may help to ease the transition and allow employees to plan for the change; and
5. Consider whether an incentive can be suggested to assist employees in accepting the change. This does not necessarily have to be a financial benefit.

This article is correct at 27/03/2009
Disclaimer:

The information in this article is provided as part of Legal-Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article.

Ailbhe Dennehy
A&L Goodbody

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