Lessons from the Recession Pt 1 - HR MAGAZINE ONLINE

This article first appeared at HR Magazine online in July 2010

HR Lessons from the Recession - The Benefits of a Flexible Workforce

Flexibility is a key concept in the labour market and employment law.  The UK Government has announced its intention to create flexible working rights for all employees, not just those with responsibilities for children or dependants, but what about employers?  In times of recession they need their employees to be flexible, but all too often existing terms and conditions of employment are set in stone. Changing them can be a long and laborious process, as extensive consultation may well be required which might even involve terminating the existing contracts of employment and offering new terms and conditions on the revised terms. 

Perhaps the most striking feature of this recession has been a whole series of examples where employees, on a voluntary basis, and after consultation, have agreed to changes involving shorter hours, taking extended unpaid leave, taking sabbaticals, and even agreeing to remain on reduced pay whilst not being required to attend work.  After all, it is better to have a job rather than none.  Winning hearts and minds has been the key to employers implementing these sorts of changes by consent. 

Although the following case itself did not arise from the recession, a decision of the Employment Appeal Tribunal made last February (Bateman v Asda) points the way forward, or at least opens a debate over general variation clauses - in other words, the ability of the employer to change pay, hours, and other terms and conditions without the agreement of the employee.  After all, it is not a variation or a change to terms and conditions if the contract already permits a change to be made within its terms. 

In the Bateman case, Asda placed several thousand employees on a pay structure without their agreement, against a background where the majority had already agreed to accept those terms.  Under the powers clearly stated in their handbook, which formed part of the contract of employment, Asda had made necessary business changes by implementing the new pay structure.  The power to make changes had not been exercised in an arbitrary or capricious manner, and the mutual term of trust and confidence had not been broken.  Plenty of advance warning and extensive consultation had taken place. 

Such clauses, if well drafted, could enable an employer to make significant changes when a recession bites.  In such times an employer may need to respond quickly by, for example, cutting pay or placing the employee on shorter hours or by cutting back on certain benefits.  This may be preferable to making formal redundancies.  It would also change the nature of consultation which normally takes place, as the employer is put in a difficult position to begin with if consent is needed to implement change.  If the employer no longer needs consent, but rather it is a matter of establishing that the change is not arbitrary and also maintaining mutual trust and confidence as to why or how the changes are to be implemented, a different type of discussion can take place. 

An employee’s consent must be obtained in order to make a change in the terms and conditions of employment to include a general variation clause, if none already exists.  There might already be a clause, but it may be inadequately drafted to cope with the kind of changes the employer may want to make without consent.  Having said this, such a clause could be introduced together with other changes which are to the benefit of the employee, or the employer could introduce such a clause for new starters only.  In due course, those new starters would become experienced and replace the current employees, so by the time of the next recession, the employer is in a far better position to make the changes required and quickly. 

How far such clauses can be taken is open to debate.  We must await further legal decisions to see if the decision in Bateman is approved, rejected, or qualified, but at the moment it is good law, and one which favours the employer.  Has Pandora’s box been truly opened?

Peter Doyle, Senior Partner 

This article first appeared on the HR Magazine website.