From time to time employers need to change remuneration or face an even serious situation. But can this be done within the law?
When seeking to achieve this, most employers know that this cannot be undertaken by simply demanding a change or withholding a portion of remuneration, such action would be a serious breach of contract.
In effect the employer is making an offer to “buy out” the relevant existing terms and at the same time adding that should the employee decline to accept the new offer, the employment will be terminated and they will be offered employment on new terms.
The process necessary for this is vexed and the process by which this is undertaken requires careful thinking and flexibility on the part of an employer.
There are two clear cases that show the difficulties faced by employers and employee. I will only look at Slade & others v TNT (UK) because it shows the complexities very clearly. The other case is mentioned at the end of this blog.
The Company employs some 10,000 people in the UK and in the Republic of Ireland, based at a total of 58 locations, including 2 “hubs” at Atherstone and Kingsbury.
At those 2 hubs were approximately 660 employees. 470 of them had been contractually entitled to receive an “end of sort (EOS) bonus” which had been introduced by the employer in 1983. The EOS amounted to something like 18% of the employees and had been discontinued for new starters in August 2005.
Employees who started after that date were entitled to an “attendance bonus” which had a lower value than the EOS.
During the final quarter of 2008 the business started to feel acute financial pressure caused by the recession. The operating profit in the year between 31 December 2007 and 2008 fell from £68.5M to £11.9M in December 2009. This created pressure on local operating managers to reduce their costs and the firm stated that the long term viability of the business was at risk if that decline could not be arrested. In response to this downturn, between the firm made over 300 redundancies. There were other cost reduction initiatives including site closures, applying reductions to sub-contractor rates, zero pay increases for all employees and reductions in the use of agency staff and temporary labour.
In 2009 the firm decided to discontinue EOS for those 470 employees still entitled to receive it. They sought to negotiate its removal with the Trade Union and, in due course, a final offer was made to those employees working in grades which were represented by the Trade Union.
The union conducted a ballot of those employees on the offer and, by a narrow majority, they rejected it. It was in response to that rejection that the Respondent gave formal notice of termination of the contracts of service (some other substantial reason) to each of those employees, coupled with an offer of immediate re-engagement on the same terms as before but excluding the EOS bonus.
On in June 2009 a number of employees lodged a collective grievance against that termination, but all the affected employees accepted the offer of re-engagement under protest and without prejudice to their right to bring a claim of unfair dismissal in relation to the termination of their contract of employment.
In 2011 the Employment Appeals Tribunal considered the case of Mrs Slade a loading bay operative (and others including Mr Brown a traffic clerk and Mr Webster a shunter driver) .
In addition to an issue of equity (fairness of the process) the initial Tribunal identified 3 issues, only two are of interest to us:
i) Were the Respondent’s reasons (the background) for the dismissals sufficient to amount to “some other substantial reason for the purposes of section 98(1) of the 1996 Act”.
ii) If such reason (some other substantial reason) was established were the dismissals fair or unfair by reason of section 98(4) of the 1996 Act.
The Tribunal found that the case was made by the employer and the outcome of the Appeal Court determination does not alter this largely.
In the case of Garside and Laycock Ltd v Booth  the Employment Appeal Tribunal (EAT) overturned an employment tribunal’s decision that an employee had been unfairly dismissed when he refused to accept a pay cut and the majority of the workforce had accepted a reduction following a drop in sales and profits at the employer, thus supporting the argument for dismissal and rehiring on different terms.
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