Fairness in varying terms and conditions of employment- what is allowable?

30th September 2011 During the current challenging economic times many businesses are faced with the need to reduce their costs in order to survive. However, astute employers are aware that making staff redundant can result in a loss of the very skills and abilities that the business will need to remain competitive and able to meet greater demands in the event of an upturn in the fortune of the business and economy at large.

A large number of employers have therefore chosen to convince their staff to agree a reduction in their pay and benefits in order to avoid the need to make numbers of staff redundant. On the whole many employees have taken the pragmatic view that it is better to agree a reduction in certain benefits or wages, than lose their job completely in a redundancy process.

Good employers will always seek to agree any reduction of pay and benefits with their staff at times of crisis for the business. There should be consultation with the staff about such measures. Sometimes employers have attempted to sweeten the bitter pill by offering a one-off payment to "buy out" certain existing terms and/ or benefits within the process of agreeing a variation of terms and conditions with their workforce.  

In the recent case of Slade v TNT (UK) the Employment Appeals Tribunal (the EAT) has examined and ruled on the fairness of a situation when negotiations failed and the business then offered new terms of employment to it's staff without the offer of "buying out" the old terms - which had been a feature in the failed negotiations.    

In this case TNT had employed loading bay staff who had an entitlement to a particular bonus. For legitimate business reasons TNT sought to remove that bonus. There followed negotiations over the proposal to remove the bonus. Those negotiations included an offer of a specific payment to "buy out" the entitlement to the old bonus. TNT warned the staff that if the deal it offered was refused, the existing staff contracts would be terminated and an offer of re-engagement (on terms excluding the bonus entitlement) would be made to the staff. The negotiations broke down. TNT then terminated the existing contracts of employment and offered new terms but without including the previously proposed "buy out" provision.

The Employment Tribunal that heard the case decided that TNT was able to show that it had a fair reason for terminating the employment under the old terms, and that it had acted fairly, therefore rejecting claims of unfair dismissal brought by the (by then) former loading bay staff. At the EAT it was held that the Employment Tribunal had acted correctly in focusing on the "reasonableness" of the decision by TNT to terminate the original contracts of employment, balancing the interests of the employer and the effect of the decision on the staff. The EAT was required to examine if the Employment Tribunal had correctly applied the test of the "band of reasonable responses" in concluding that TNT had acted reasonably in the circumstances. The EAT considered that it was not right to say that the only reasonable response for the employer would be to offer re-engagement on terms which included the "buy out" sum that had featured in the failed negotiations. On the contrary the EAT concluded that it was open to a reasonable employer to conclude that they should not offer a lump sum on re-engagement when they were not going to achieve any of the benefit of the agreement for which the lump sum had originally been offered.

There is an important lesson to be learned from this case.

For employees that lessons are to avoid being too dogmatic and intransigent in the course of, and context of, negotiations over a change of terms of employment, as the employer may still be able to demonstrate that a decision then to dismiss the staff can fall into the "range of reasonable responses" in deciding to dismiss them, notably without there being any obligation to repeat the offer of a "buy out" of the previous terms. In addition employers should note that just because at one stage an offer to make a lump sum "buy out" of the old terms was offered  does not automatically mean that it must remain a feature of an offer in the event of negotaions failing.

For employers the case illustrates the fact employers should follow a process of discussion with staff, but if that fails they will then still be able to move on with a dismissal process with offers of re-engagement on the reduced terms and conditions. In this period of economic pressure it is important that all parties try to seek to resolve problems by discussion and negotiation, but the "band of reasonable responses" approach will often be seen as a means of enabling businesses to move ahead with necessary changes to staff terms and conditions where that is in the legitimate interests, and needs, of the business.

At Hallett Employment Law Services we can help guide you through this process, either from the position of the employer or employee. If you need further help on this issue please do not hesitate to contact us.