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 terms and conditions containing the change they want to enforce. A large number of employers, especially local authorities, have adopted this tactic since the start of the economic downturn.

Terminating an existing employment contract and offering new terms is not a breach of contract, as long as the employer gives the right amount of 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. Even so, ending the contract is a dismissal, even if employees decide to accept the new terms.

An employee can 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, as long as they have enough service:

The same principle was applied in Alcan Extrusions v Yates and others [1996] IRLR 327. In this case, the employer fundamentally changed a shift system, resulting in different hours of work, including weekend and bank holiday working, cutting the amount of overtime payments, shift premiums and start-up payments received by employees, and limited their choice of holidays. The employees continued to work under protest and brought claims of unfair dismissal. The EAT held that the contract terms under the new system were so radically different that the employees had been dismissed from one contract and re-employed on another. They were entitled to claim unfair dismissal.

Although ending a contract and offering new less favourable terms is a dismissal, it will not necessarily be an unfair dismissal. 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 usually argue that this kind of dismissal was fair for “some other substantial reason” (section 98(4) ERA 96). The sorts of factor that are taken into account to decide whether the dismissal is fair are outlined in Chapter 10: Dismissal, page 286.

Where an employer terminates 20 or more employment contracts with immediate offers of re-engagement, this triggers 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).

The position is more complicated where dismissals take place after a TUPE transfer. Contract changes that breach TUPE are void, and dismissals for refusing to accept those changes would be automatically unfair. See Chapter 12 for information about TUPE.