Forcing change by terminating contract and offering new (worse) terms

Increasingly, employers who fail to secure the consent of the workforce to a contract change are responding by giving notice to end the contracts of employment, while at the same time offering new (usually less favourable) terms and conditions. A large number of employers, especially local authorities, have adopted this course since the start of the economic downturn.

If an employer terminates the existing employment contract and offers new terms, this is not a breach of contract, as long as the employer gives adequate notice (either the statutory minimum or the amount stated in the contract, whichever is longer) (Kerry Foods v Lynch EAT/0032/05 ([2005] IRLR 680)). This is because by giving notice to end the contract, the employer is complying with the contract rather than breaking it. However, this will be a dismissal and employees in this situation can bring a claim for unfair dismissal, as long as they have enough service.

An employee can still bring a claim for unfair dismissal even if they accept the new contract terms and start work under the new (less favourable) contract of employment:

Whether a dismissal is fair will depend on whether the employer had a good business reason for introducing the change and acted reasonably in all the circumstances. Employers will usually argue that the dismissal is fair for “some other substantial reason”. The factors that will be taken into account to decide whether the dismissal is fair are outlined in Chapter 10: Dismissal on page 248.

Where an employer terminates 20 or more employment contracts with immediate offers of re-engagement, this will trigger the duty to engage in collective consultation with the union and potential liability for a protective award (GMB v Man Truck & Bus UK [2000] IRLR 636) (see Chapter 11: Redundancy).