Businesses sometimes need to change employees’ terms and conditions to respond to new working practices, financial pressures, restructuring or changes in how the organisation operates.
However, an employment contract is a legally binding agreement. Employers cannot usually change contractual terms simply because a different arrangement would suit the business better.
Why might an employer need to change employment terms?
There are many legitimate reasons why a business might consider changing an employee’s contract.
Changes could relate to:
- Pay or bonus arrangements
- Working hours
- Shift patterns
- Place of work
- Duties and responsibilities
- Benefits
- Holiday entitlement
- Working from home or hybrid arrangements
Whatever the reason, employers should first establish whether the proposed change affects a contractual term and what the existing contract says.
Do employees need to agree to contract changes?
In most circumstances, contractual changes should be agreed between the employer and employee, or with an appropriately authorised trade union or employee representative.
An employer should explain what it is proposing, why the change is needed and when it would take effect.
Consultation should provide employees with a genuine opportunity to ask questions, raise concerns and suggest alternatives rather than simply being informed of a decision that has already been made. Acas recommends consulting even where an employer believes an existing flexibility clause may permit the change.
What is a flexibility clause?
Some employment contracts contain flexibility or variation clauses allowing an employer to change particular terms in certain circumstances.
For example, a contract may provide some flexibility around an employee’s place of work or working hours.
However, a flexibility clause does not necessarily give an employer unrestricted power to make whatever changes it chooses.
Employers should consider the precise wording of the clause, whether using it is reasonable in the circumstances and how the change will affect individual employees.
Consulting before relying on a flexibility clause can also help identify discrimination risks or personal circumstances that may need to be considered.
How should employers consult about changes?
Good consultation should start before the proposed change is implemented.
Employers should clearly explain:
- What is changing
- Why the business considers the change necessary
- When it is proposed to take effect
- Which employees will be affected
- Whether the change is permanent or temporary
- What alternatives have been considered
Employees should have sufficient information to understand the proposal and a reasonable opportunity to respond.
Where a recognised trade union or other employee representatives are involved, additional consultation requirements may also need to be considered.
What if employees agree to the changes?
Where agreement is reached, employers should clearly record what has been agreed.
Changes to an employee’s main terms of employment must generally be confirmed in writing within one month of the change. Acas also recommends putting other contractual changes in writing so that both sides have a clear record of the agreement.
Employers should explain when the new terms take effect and update relevant contracts, policies or other documentation where necessary.
What if an employee refuses a contract change?
If an employee does not agree, employers should avoid immediately imposing the change.
Instead, they should try to understand why the employee objects and consider whether an alternative or compromise could achieve the business objective.
Imposing a contractual change without agreement can amount to a breach of contract. Depending on the change and circumstances, employees may potentially pursue claims involving unlawful deductions from wages, breach of contract or constructive dismissal.
Employers should also be cautious about assuming that an employee who continues working has automatically accepted a change. Whether acceptance can be implied will depend on the circumstances.
What is dismissal and re-engagement?
Where agreement cannot be reached, an employer may currently consider terminating the existing contract and offering continued employment on new terms. This is commonly known as dismissal and re-engagement or “fire and rehire”.
This should only be considered as a last resort.
The statutory Code of Practice on Dismissal and Re-engagement requires employers to take reasonable steps to explore alternatives and engage in meaningful consultation before proceeding. An unreasonable failure to comply with the Code can lead to relevant Tribunal compensation being increased by up to 25%.
Because ending the original contract is a dismissal, employers must also consider notice, fair reasons and fair procedure.
If an employer proposes to dismiss and re-engage 20 or more employees, collective consultation obligations may also apply. Failure to comply can currently result in a protective award of up to 180 days’ full pay for each affected employee. (Note that the 20 employee trigger is correct now but the ERA 2025 will change how this threshold operates, expected April 2027).
Are the rules on fire and rehire changing?
Yes. Employers planning contractual changes should be aware of significant reforms expected to take effect from March 2027 (although this date could be subject to change).
The Employment Rights Act 2025 will introduce stronger restrictions on using dismissal and re-engagement to make certain changes to core contractual terms. These include areas such as pay, pensions, working hours and leave entitlement, with additional rules covering specified shift-pattern changes.
Dismissals intended to impose protected changes will generally become automatically unfair unless a narrow exception relating to serious financial difficulties applies.
Employers considering substantial contractual changes should therefore check the latest legal position before proceeding.
Consider discrimination risks
Even where there is a genuine business reason for changing terms, employers should consider whether the proposal could disproportionately disadvantage particular groups.
For example, changing working hours, location or shift patterns could potentially have a greater impact on employees with disabilities, caring responsibilities or particular religious requirements.
Equality and reasonable adjustment obligations should therefore form part of the planning and consultation process.
Managing contract changes effectively
Changing employment terms and conditions requires careful planning, communication and consultation. Starting discussions early and remaining open to alternatives can make it easier to secure agreement while protecting employee relations.
DTM Legal’s Employment & HR team advises employers on changing employment contracts, consultation, contractual variations, organisational change and dismissal and re-engagement.
If your business is considering changing employees’ terms and conditions, contact DTM Legal’s Employment & HR team to discuss the proposed changes and the appropriate process to follow.