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Employment Law: Tread carefully when cutting costs

Employers increasingly risk straying outside the law when trying to cut employee costs in order to survive the recession. By empoyment and property partner, Michael Pitt.

Take the case of the organisation that tried to withdraw its senior employees’ right to a company car.

First it tried to get the employees to agree to new contracts that made no mention of their company cars. They refused.

The organisation then wrote to them to terminate their employment. It offered to take them on again only on new terms that excluded an indefinite entitlement to a company car.

The letter said they could keep their current cars until the end of the year, or take a sum of money instead, but then they would lose the right to both.

In effect, the organisation was saying that the employees would have to accept worse terms and conditions if they wanted to carry on working for it. If they refused, they would lose their jobs.

This was an ultimatum and not a mutually agreed change to the employees’ terms and conditions. The employer was consequently breaching their contracts.

It would have been exactly the same if the employer had tried, without the employees’ consent, to “buy out” their right to a company car by offering them a mileage allowance for the business use of their private cars.

I advise employers never to introduce major changes like this without getting the staff concerned to agree. This may be by inviting the employees to meetings individually, or doing it through their elected representatives.
If your organisation recognises a trade union, it must be significantly involved in the consultation process and employee agreement should be confirmed in writing.

If you cannot reach agreement, I recommend that you seek legal advice, as it is possible to alter terms and conditions by ending contracts and offering fresh terms but it is a complex area of law and needs professional guidance.

Some organisations state, in their employee contracts, that the employer holds the right to vary the terms and conditions of employment upon reasonable notice. But these so-called “flexibility clauses” are simply not precise enough to be relied upon in all cases.

Pearson Hinchliffe Commercial Law can help you with employment law, especially breach of contract claims and consulting with employees and their representatives.

Click here to speak to a specialist employment lawyer.

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