Letter terminating employment and offering re-employment on new terms

Where an employee refuses to accept a change, you may decide that the only way forward is to impose the variation by way of dismissal from the old contract of employment coupled with an offer of continued employment on the new contractual terms. Beware that this can still amount to an unfair dismissal regardless of whether or not the employee accepts the offer of re-employment on the new terms.

Termination and re-employment

If an employee refuses to agree to a change to their contract of employment, one option would be to terminate their current contract and then offer to re-engage them on the proposed new terms and conditions. If there is a change that you must make to the contract for sound, good business reasons but the employee, having been consulted, will not agree to it under any circumstances, you may decide to give them notice that you are terminating the current contract of employment. You would then offer immediate re-employment on the new terms. The amount of notice given must be the greater of the employee’s contractual notice period and the statutory minimum notice period. Use our letter for this purpose.

An unfair dismissal?

This course of action is risky in the case of employees who have sufficient continuity of employment to claim unfair dismissal (although it’s a safer option than imposing a unilateral variation to the terms of the contract - see further below). Even though you are terminating the current contract of employment with notice and therefore are not in breach of that contract, that termination still constitutes a dismissal and hence can still be an unfair dismissal. An employee can generally make a claim for unfair dismissal if they have been employed for two years or more. This is still the case even if you have offered to re-engage the employee on new terms and they have indeed accepted that offer, albeit under protest. In defending this type of claim, you will need to show a potentially fair reason for the dismissal, typically “some other substantial reason”. The question will then be whether the dismissal was fairly conducted. In deciding whether a dismissal in these circumstances is fair or unfair, an employment tribunal will look at:

•         your business reasons for wishing to vary the terms and conditions

•         the consultation and negotiation process you went through - it must be full and meaningful

•         the efforts you made to reach a compromise

•         the employee’s reasons for objecting to the change.

The situation must be one where the only sensible alternative to an acceptance by the employee is to terminate the existing contract and offer a new one. There is no need for the alternative to be the survival of your business but you must have very good business reasons for the change and it must be a reasonable and necessary one to make in the circumstances. The tribunal will weigh the advantages to you of the change against the disadvantages to the employee of the new contract terms. This is a balancing process. Where a change affects several staff, the tribunal will also look at whether a substantial proportion of the employee’s colleagues agreed to the change.

Consultation

As part of a fair procedure, you will need to carry out consultation with the affected employees on an individual basis. This will necessarily involve having a series of meetings with them to try and obtain consent to the change before any final decisions on dismissal and re-employment are made. Set a deadline for obtaining written agreement to the proposed change and warn the employee that if agreement or a compromise cannot be reached by the deadline, you would then propose to consider terminating their current contract of employment on notice and immediately offering re-employment on the new terms. However, do be careful not to use a threat of dismissal and re-employment as a tactic in negotiations so as to put undue pressure on employees to rush into accepting the proposed change. Also, be aware that you will still need to observe the rules on collective consultation if you are proposing at the outset to dismiss 20 or more employees by this method. This is still the case even if you believe many of the employees will agree to the change - because you won’t know this for sure until after you have consulted. An employee has no right to appeal against a dismissal on these grounds. However, it is preferable to still give the employee an opportunity to appeal (where the collective consultation obligations do not apply) as part of an overall fair dismissal procedure.

Unilateral variation

Where an employee is not willing to accept a proposed change to their contract of employment, another option would be to impose it on them anyway. This is a more risky option than dismissal and re-employment because it will always be in breach of contract. If the employee then continues to work under the new terms and conditions without making their objections known to you, after a period of time (usually months rather than weeks) they may be deemed to have accepted the change. Exactly how long an employee must work before being taken to have agreed to a contract variation depends on the facts of each case. In addition, the principle of deemed acceptance only applies to those provisions of the contract that are operative on a day-to-day basis where the variation has an obvious effect. Alternatively, the employee could work under the new terms and conditions under protest, in which case there is no acceptance by them, you are still in breach of contract and the employee can issue a claim against you in the county court for this breach. Finally, you run the serious risk that, if your breach of contract is sufficiently fundamental and the employee has the required period of continuous service, they will resign as a result of it and then claim constructive unfair dismissal. An employee can generally claim constructive dismissal if they have been employed for two years or more. Fundamental breaches include such matters as reductions in wages and working hours and probably changes to work location. Note that there will be a limit on the time an employee can continue to work under protest and keep open the option of resigning and claiming constructive dismissal. They cannot work under protest forever! Each case will turn on its own facts and circumstances.