Friday, 23 September 2011

How do you vary terms and conditions of employment

Charles Price, Employment Barrister looks at the recent judgment of 'Slade and Ors v TNT (UK) Ltd' where an employer wanted to remove the opportunity to win a bonus from the contracts of his workforce firstly by way of a sum of money and then by dismissal and re-engagement. This case illustrates the legal tests looked at when considering the fairness of the dismissals...

In this case, an employer had sought to change terms of employment and made an offer to “buy out” certain existing terms, but warned that refusal would result in dismissal with an offer of re-engagement on the proposed new terms. The dismissal and redeployment strategy as we all know has been used regularly especially in recent years as employers have been forced to make cuts.

The payment of what was called an EOS bonus had been agreed in 1983 to incentivise the workers at the hubs to complete the sort on time. However, by 2005, the Respondent was negotiating with the union to discontinue the payment of the bonus and to replace it with an attendance bonus which was less advantageous to employees. The outcome of those negotiations was that new starters did not receive the EOS bonus but did receive the attendance bonus, whereas existing employees retained their entitlement to the EOS bonus. The Respondent agreed to “red circle” the bonus structure. Those new arrangements came in to effect from 1 August 2005.

As the company saw profits diminish steadily it sought to discontinue the EOS bonus:

The Tribunal found that the reasoning for this was a combination of:

(a) A belief that it would reduce costs.

(b) The payment of the bonus was divisive because an increasing proportion of employees at the hubs did not receive it despite doing the same work as those who did.

(c) The Respondent believed the effect of the bonus was that the night workers at the hubs were being paid an overall rate which was 26% above market rate for comparable work.

Between 11 February and 7 May 2009 there was a series of meetings between the Respondent and the union and other representatives. Those negotiations included tentative proposals to replace the bonus scheme but mainly centred on proposals to pay a lump sum to those entitled to receive the bonus in return for their agreement to change their terms and conditions. The proposals, as they developed, were the subject of three work force ballots but ultimately no agreement was achieved.

The Tribunal found that when it became clear that matters would not be agreed by negotiation the Respondent made a “final offer” to the work force for the payment of a lump sum in return for agreement to discontinue the bonus. On 12 May 2009 it wrote to the workforce setting out its point of view, making it clear that if the final offer was not accepted in a forthcoming ballot, then employees would be issued with contractual notice to terminate their contracts of employment.

In fact that final offer was revised and, on 22 May 2009, Mr Harper of the Respondent wrote to all affected employees giving details of the revised final offer making clear that if this could not be achieved by agreement then termination of employees contracts would follow. This revised final offer was also rejected.

On 5 June 2009 those employees who were represented in those negotiations and who, by the ballot, had rejected the final offer, received contractual notice terminating their contract of employment.

On 8 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.

The EAT judgment sets out the approach legally of the tribunal and made no criticism of it :

They first, considered, and made a finding, whether the reason for the dismissal was a substantial reason (reference to one of the fair reasons found for dismissal in the Employment Rights Act 1996) , the burden of proof being on the Respondent.

Second, if the reason for the dismissals was for a sound business reason, or one which the Respondent reasonably believed was a sound business reason, then it would be a substantial reason. (It was not necessary for the action to be the only available action to avert a business disaster, but on the other hand a reason must not be trivial.)

Third, if the Respondent satisfied the Tribunal as to the reason for the dismissal and that it was a reason of substance, the Tribunal must consider whether the dismissal was fair having regard to section 98(4) ERA. The Tribunal said of this,

“In this exercise our focus must be on the reasonableness of the respondent’s conduct. This involves an exercise balancing the advantages to the business of proceeding in the way that the respondent’s did compared with the effects on the claimants.”

Finally they had to consider the question of procedural fairness.

Firstly they looked at the reason for dismissal; they found (para 22) They found that the reason was a business restructuring, namely a change of remuneration structure with a view to reduction of costs and an increase in efficiency to combat falling revenues and an alarming fall in operating profits. They found that the Respondent had not been successful in all it set out to do in terms of cost reduction, but were satisfied they had an honest and reasonable belief that taking the proposed steps would achieve those aims. Those aims were legitimate and necessary and constituted a substantial reason satisfying the provisions of section 98(1). That conclusion was not challenged in the appeal.

One of the main appeal arguments concerning fairness was that:

ii) In determining the issue of fairness the Tribunal applied the wrong legal test in considering the reasonableness or otherwise of the Respondent not mitigating the loss to the employees’ (who did not accept the changes) wages by the payment of a lump sum at least equal to that it identified as affordable during negotiations and which it did pay to employees who accepted settlement agreements. The argument runs that if the Respondent could afford to mitigate the impact of the change on its workforce when it made the final offer, then it must be inequitable for it not to offer that same mitigation when it proceeded, not by way of an agreement but by way of imposition. The Tribunal erred by focussing on the much more limited basis of what the Claimants “legitimate expectations” required.

In other words, fairness required them to undertake a balancing exercise in the event they did not apply that test sufficiently or at all.

In The Hon. Mr Justice Wilkie's judgment, the Tribunal focused on the correct question, which was whether the employer acted reasonably, that is to say within the band of reasonable responses. In so doing, it rejected the contention that the only reasonable response for the Respondent would be to offer re-engagement on terms which included the buy-out sum. We agree with the Respondent that the lump sum had been offered in order to secure a benefit to the Respondent – agreement to the changes it wished. When they were unable to proceed by agreement, there was no obligation upon them as reasonable employer to include that lump sum in the terms of re-engagement they were offering in the aftermath of dismissal where they were not going to achieve any of the benefit of an agreement for which the lump sum had been offered.

Appeal No. UKEAT/0113/11/DA

By Charles Price Barrister No5 Chambers

Charles is a Public Access Barrister which means that he can be instructed by members of the public.