The law on changing employment contracts
15th January, 2012 by Brian ButlerThe golf club has made it clear it needs to make economies. The intention is to change staff terms and conditions of employment. Examples for discussion include a reduction in contractual hours of work hence a reduction in pay, no overtime payments and no sick pay for the first three days of sickness absence. The club justifies these potential measures by saying that the alternative might be redundancies. Can the club do this? What is the legal position of employees?
The short answer is that the club could impose these kinds of reductions without the consent of employees. However employees can refuse to give their consent and claim unfair constructive dismissal. The fuller answer needs to understand how employment tribunals regard cases like this and under what conditions they could find such dismissals unfair.
How employment tribunals regard cases that have arisen in the club:
The circumstances that have arisen in the club could ultimately lead to the dismissal of employees for Some Other Substantial Reason (SOSR). The relevant law is that part of the Employment Rights Act 1996. S98(1) that reads as follows:
“(1) In determining for the purposes of this part whether the dismissal of an employee is fair or unfair, it is for the employer to show:
(a) the reason (or, if more than one, the principal reason) for the dismissal, and
(b) that it is either a reason falling within subsection (2) or some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held.”
There are a number of helpful authorities on the issue of what can amount to a substantial other reason for the purposes of s98 (1)(b). There is the decision in Moon v Homeworthy Furniture (Northern) Limited [1976] IRLR 298. It was held by the Employment Appeal Tribunal in Moon, and has many times been supported and followed since, that, in hearing a complaint of unfair dismissal arising out of redundancy, an employment tribunal can investigate the origin of the redundancy situation, including questions such as unfair selection or lack of notice, but it has no jurisdiction to investigate the reasons for creating the redundancies. It is against that background that the significant authorities on substantial other reason, namely, where the dismissal has arisen from business decisions by the respondent, falls to be considered.
In other words an employment tribunal will not disturb the decision of the club to cut the sick pay but will concentrate on the process the club followed thereafter including consultation and so on.
The judgment of Arnold J in Hollister v National Farmers’ Union[1978] ICR 713 is relevant. In that decision he said as follows:
“We, for our part, do not think that in order to qualify as a reorganisation involving a state of things which amounts to ‘some other substantial reason’ it is necessary to show that the occasion for it is an alternative to total disaster. We think it is sufficient if the occasion for it is a sound business reason; and by that we mean not a reason which we think is sound, but a reason which management thinks on reasonable grounds is sound.”
The next significant decision is that in Banerjee v City & East London Area Health Authority [1979] IRLR 147, a decision of the Employment Appeal Tribunal, again given by Arnold J. In that case, he said:
“18. The question is, was it a substantial reason? This is, as we think, to a very large extent a matter for the employer.”
And then he said at 19 as follows:
“19. If an employer comes along and says ‘We have evolved such-and-such a policy’ and either ‘we regard it as a matter of importance’ or ‘the advantages which are to be discerned from this policy are so-and-so,’ subject to there being any effective cross-examination, it seems to us that it must inevitably follow that that evaluation by the employer of the policy as a matter of importance, a matter in which substantial advantage is discerned, if it is properly the subject matter of another reason, can be seen to be the subject of a substantial other reason.”
The decision there is that, on the particular facts of that case, the Employment Appeal Tribunal concluded that there had not been evidence to support the existence of such a policy. No doubt what he refers to there is that effective cross-examination had destroyed the reason put forward by the employer. But that does not take away from the fact that, unless it is concluded by the Tribunal that the employer did not in fact have such a policy, which seemed to the employer to be a sound commercial reason, on the face of Banerjee it must, inevitably, follow that that evaluation by the employer that there was some substantial advantage to be discerned was not challengeable simply because the tribunal itself might reach a different conclusion.
That is made further clear in the Employment Appeal Tribunal’s decision in Harper v National Coal Board [1980] IRLR 260, in a judgment given by Lord McDonald, where he said as follows:
“It was argued before us that it was not sufficient to bring a case within this category simply to show that the employer for reasons of his own regarded the reason as a substantial one. There must, it was said, be facts which indicated that the employer was entitled to regard the reason as being substantial. We were referred in this connection to Hollister v the National Farmers’Union[1979] IRLR 238. This again may be correct but within certain limits. Obviously an employer cannot claim that a reason for dismissal is substantial if it is a whimsical or capricious reason which no person of ordinary sense would entertain. But if the employer can show that he had a fair reason in his mind at the time when he decided on dismissal and he genuinely believed it to be fair this would bring the case within the category of another substantial reason. Where the belief is one which is genuinely held, and particularly is one which most employers would be expected to adopt, it may be a substantial reason even where modern sophisticated opinion can be adduced to suggest that it has no scientific foundation.”
Finally, in Kent County Council v Gilham [1985] IRLR 18, a decision of the Court of Appeal, Griffiths LJ said this:
“It is quite impossible to argue that such a reason could not be a substantial reason for dismissing a dinner lady. The hurdle over which the employer had to jump at this stage of an enquiry into an unfair dismissal complaint is designed to deter employers from dismissing employees for some trivial or unworthy reason. If he does so, the dismissal is deemed unfair without the need to look further into its merits. But if on the face of it the reason could justify the dismissal, then it passes as a substantial reason, and the enquiry moves on to the question of reasonableness.”
In other words if the club can justify the cut in sick pay as a good business reason and not a trivial or unworthy reason it is likely to be accepted by an employment tribunal. If an employment tribunal accepted your reasons why the cut in sick pay was not reasonable it would effectively substitute its views for that of the club.
Under what conditions employment tribunals could find such dismissals unfair:
This leaves the question of reasonableness. In a recent case, Cummings v Siemens Communications Ltd, an employment tribunal held that employers should follow the ACAS Code: Disciplinary and Grievance Procedures (‘ACAS Code’) when dismissing an employee for SOSR. What the case demonstrates, is the need for employers to always adopt a fair dismissal procedure and that when dismissing for SOSR, they should consider following the procedure set out in the ACAS Code.
The disciplinary procedure and grievance procedure in the employee handbook are based on the ACAS Code. Classic errors would be a lack of consultation, a warning that dismissal would be a consequence of not accepting the new contract, a dismissal hearing with the right to be accompanied and the right of appeal.
To be unreasonable, the club’s conduct would have to be outside the band of reasonable responses of any reasonable employer. Roughly speaking, the conduct is reasonable if some decent employers would have handled it differently, but unreasonable if no reasonable employer would have handled it the same or the dismissal was not based on an honest and genuine decision on reasonable grounds.
In summary, it is a relatively low hurdle for the club to satisfy an employment tribunal that it has identified a ‘substantial reason’ for making unilateral changes to employees’ contract of employment. The process by which the club makes the changes, however, has to pass the test of reasonableness. This is a high hurdle but with proper legal advice fair dismissals could result.