Varying an Employee's Contract during the Coronavirus Shutdown
Everything has changed. Businesses, landlords, schools, local authorities, contractors, entrepreneurs are all having to work out how to operate in the perfect storm of pandemic, shut down, and continuing bills.
It is forcing many companies to make tough survival decisions, which often involve significant contractual variations for their employees.
Here are some of the most common questions about contractual variation being asked by employers and employees during this coronavirus pandemic.
Question: Can an employee be forced to work from home even if there is no 'home working' clause in the employment contract?
The short answer is 'No!'. But that is not the entire answer.
Contracts are legally enforceable agreements, which means if an employer and employee did not previously agree to any particular provision, it cannot then be forced on an employee.
However, there are several significant caveats to that answer.
Even if a contract does not contain an express 'home working' clause, it may well contain a mobility clause, which is a generalised term entitling an employer to require an employee to move their place of work to another location within reason. An employer will be entitled to activate this clause and direct that the employee's new work place is their home
Additionally, an employer can certainly shut down an office or location and restrict employees from working from that location without the employees prior consent. If that leaves the home as the only other viable option, an employee will be faced with little option but to agree to the variation or be treated as unable or refusing to work. This may then trigger action by the employer.
If an employee simply refuses to agree to a 'home working' variation to the contract, an employer might be entitled to dismiss that employee without it being treated as an unfair dismissal. In those circumstances, the employer could offer to re-engage the employee but only on the new terms and either the employee would accept those terms or he/she would not. Such a dismissal would not amount to a redundancy (it's actually classed as 'some other substantial reason'), which means no redundancy payment would be triggered.
To avoid this kind of pain and uncertainty, employers and employees should engage and reach mutual agreement where possible.
Question: Can an employer reduce employee salaries during the shut down?
(for separate thoughts on salary reduction through the furlough scheme, read here)
Pay is considered one of the fundamental terms of an employment contract.
As a matter of law, unless there is a clause in the contract authorising an employer to vary pay, no change by way of reduction to pay can be imposed without agreement with the employee.
If a contract provides that an employer can vary an employee's hours, then an employer might effectively achieve a pay reduction by simply reducing the number of hours its employee is required to perform.
However, where this is not an option for an employer, the only way to achieve a salary reduction (where there is no contractual clause that allows for this) is to reach agreement with the employees.
If an employee agrees, then this serves as a contractual variation. An employer should ensure that it writes to the employee setting out clear information about the change that has been made. Matters to be agreed on include:
what is the pay being reduced to?
what about commission, bonuses, expenses and benefits? Are these being reduced or will they remain unaffected?
For what period is the reduction to be effective? (ie does it run to a specific date? Is it automatically terminated once the lockdown ends? Is it extendable unilaterally by the employer or only by agreement?
how are other related terms affected e.g. holiday pay, contractual sick pay, pension contributions
Will the salary reduction be reimbursed once normal life is resumed?
If an employee's employment is terminated during the salary reduction period, is notice pay at the full or reduced rate?
If no agreement can be reached on the terms of the salary reduction, an employer may be faced with the option of either keeping the employee on at the full salary or dismissing the employee.
As long as the employer follows a reasonable procedure throughout, such a dismissal would likely be considered fair.
Question: Can an employer force a change of hours (including reduction) on an employee?
Similar considerations apply to a change in hours by an employer.
First, consider the contract. If it allows for variation in hours, an employer may be within his or her rights to simply impose the necessary changes.
Otherwise the employer should consult employees; agree necessary changes and implication of those changes; document the changes; implement them.
If no agreement can be reached, an employer is again faced with the choice of leaving things as they are or terminating. However, where in fact the employer does not have sufficient work to justify the hours, a termination in those circumstances would likely be by reason of redundancy.
Question: If an employee is assigned to a third party client that has temporarily closed, does the employer have to find alternative work for the employee?
The standing agreement between employer and employee (except in certain contracts e.g. zero hours contracts) is that the employer will provide work and the employee will perform it in return for pay.
If client business has been lost, an employer should where possible provide suitable alternative work to an employee and generally an employee will be contractually obligated to perform that suitable alternative work.
However, if no suitable alternative work is available, then an employer may either have to take advantage of the furlough scheme or consider making redundancies.
Question: What if most employees agree to the changes but a few do not?
Employment contracts are individual agreements between an employer and an employee. As such, what one employee agrees does not bind another.
However, there are situations where collective bargaining (for instance with Trade Unions) is used as a way of agreeing bulk changes where many employees are to be affected.
If an individual contract expressly incorporates the terms of a collective agreement, then an employee may then be bound by such terms as are subsequently collectively agreed, even if the employee personally disagrees with it.
Question: Can an employer just impose the change even though the employee did not agree to it?
If an employer imposes a change (whether with or without consultation) that he or she is not contractually entitled to, this will amount to a breach of contract.
In such circumstances an employee is faced with a decision: if the employer wont negotiate, then the employee will either have to waive the breach and accept the change or resign.
If the employee resigns, he or she may be able to claim constructive dismissal, which would then entitle the employee to specific compensation, such as notice pay and other losses suffered as a result of the constructive dismissal. Whether or not such a constructive dismissal would also be considered an unfair dismissal (which creates bigger liability for loss of earnings) will depend on the nature of the change, the process followed to impose it, and the circumstances of the employer's business.
Question: What about those terms that reserve the right for an employer to make any changes to the employment contract?
Some contracts contain a clause to the effect of "We reserve the right to make reasonable changes to any of your terms and conditions of employment"
This does give an employer significant scope to make changes without first waiting for specific consent from the employee. However, even such a clause does not give an employer carte blanche to do whatever it wants however unreasonable.
Firstly, the context of the clause should be checked for any limiting provisions. When properly read, is it applying to all and any terms or certain category of terms?
Secondly, even if it is a generally applying term, It will still be a question of degree and reasonableness.
A court would want to see that the employer:
consults with the relevant employee,
considers all possible options,
limits changes to what is reasonable necessary
Where the employer can show that the changes are reasonably necessary and have been effected in a procedurally fair way, such a change will likely be considered justified.
Read more articles on employment law and the coronavirus here
Furlough/Job Retention Scheme Update 1
Furlough/Job Retention Scheme Update 2
Furlough/Job Retention Scheme Update 3
Protecting Employee Health & Safety during the coronavirus pandemic
Working from home during the shutdown
For more specific advice on employment law and the coronavirus pandemic, feel free to reach out to our clerks in chambers.
1 Essex Court