'My way, or the highway'

Given the immense uncertainty within which businesses across all sectors are currently operating, harsh new economic realities are now taking hold which are fundamentally reshaping the nature of the employment relationship.

In many respects what we are now witnessing is the re-emergence, albeit perhaps on a temporary basis, of the old "master-servant" employment relationship as the "balance of power" shifts towards the employer. Skilled highly-paid employees engaged in all areas of the service sector are now no longer in the ascendancy as they recalibrate their priorities. Stability within their working lives is now being given a higher priority over the pursuit of variety, flexibility and self autonomy in how they provide their services.

Of course it is not that the basic floor of statutory or contractual rights has diminished, but rather that it is now employers that are running with the flexible working baton and in a very practical sense are able to impose sweeping changes to terms of the employment contract, which would have been unthinkable only a matter of months ago.

It is now becoming commonplace for employers operating within all types of businesses to seek to reach agreement with their employees to reduce contractual working hours and in some cases pay, as means to try to avoid the necessity of making redundancies. Employees recognise and understand that unless they are willing to make, in some cases, very substantial concessions, they may find themselves out of work for a considerable period of time.

Given the seismic shift that is taking place in the employment market there are substantial opportunities for businesses to reorganise themselves so as to ensure not only that they survive the economic downturn but also that they will be well placed to increase their market share at the expense of less adept competitors. The challenge facing an employer is how to retain its talent pool, by working constructively with its employees to reach solutions that minimise the number of compulsory redundancies. Demonstrating a sense of "fair play", notwithstanding the relatively free hand that employers now have to impose changes to contractual terms, will go a long way to ensuring that those employees who are retained during the downturn will not hit the road at the time of their choosing, once the economic climate improves.

Below is a summary of some of the key issues that face employers seeking to impose fundamental changes to terms and conditions of employment and/or to reorganise their businesses:

• Identify the key strategic objectives and be clear and concise in communicating to the employees what changes are being sought and why those changes are necessary. Establish a clear timeline as to when it is intended that the changes will take effect.
• When proposals to vary contractual terms are being discussed with employees, ensure that a draft of the proposed revised terms is available so that employees have a clear understanding of the specific changes to which their consent is being sought.
• Consider whether there is merit in establishing an informal consultation mechanism for staff who are being affected by the proposals. However, if 20 or more employees are going to be affected by any proposed changes to contractual terms then the collective consultation requirements (set out in Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992) may be triggered. Whether such collective consultation requirements are triggered will largely depend upon whether dismissals of employees who do not accept the proposed changes are being threatened and the extent of the changes being made for employees retained. Clearly great care needs to be taken how the proposals are put forward.
• Carrying out dismissals of employees who refuse to accept variations to their contractual terms which an employer views as being necessary for the business may be a potentially "fair reason for dismissal" and therefore provide a defence to an unfair dismissal claim. The initial hurdle for the employer is to show that the reason for the change is more than trivial or whimsical. Assuming that the employer can overcome this hurdle and that appropriate individual consultation has been undertaken in order to establish the fairness of the dismissal, a broader balancing test will be applied by an Employment Tribunal, which involves balancing the needs of the employer and the interest of the employee.
• Determine whether the contemplated reorganisations will trigger a redundancy situation. Reorganisations and redundancies are two different concepts and they are easily confused. Reshuffling duties amongst existing staff will not create a redundancy situation nor will seeking to reduce costs by enforcing imposed changes, such as reductions in pay. Redundancy, on the other hand, has a specific statutory meaning and care needs to taken in establishing whether, if a redundancy situation exists, any actual dismissal carried out will be regarded as being by reason of redundancy.
• In the current economic downturn, if dismissals are required by businesses, then in most instances employers can be reasonably confident in establishing that a redundancy situation exists. A headcount reduction by reason of redundancy offers the opportunity for an employer to reflect critically on the skill sets it needs to retain in order to ride out the economic downturn. Redundancy selections can be made accordingly, by reference to the skills which the employees at risk have as well as a variety of other factors including their individual performance.
• Ensure that consistent treatment is applied to all affected employees (including those away on long-term sickness absence, maternity leave or sabbatical etc) so as to minimise the risk of claims of discrimination being raised.
• Bear in mind that employees often receive large awards at Tribunal not because the employer has treated them particularly badly, but rather because economically they are substantially out-of-pocket as they are unable to reduce their loss by securing income from alternative employment. Therefore, the importance of following the correct procedures and giving due consideration to the issues set out above should not be underestimated in a recession since dismissing employees unfairly is likely to prove even more expensive for employers in these difficult times.

Our Employment team has substantial experience in providing high-level strategic advice to businesses considering undergoing reorganisation. For further assistance please contact Howard Hymanson on 0207 667 5000.