British Gas have been in a long running dispute with boiler engineers over changes to their terms and conditions of employment. The 9-month long dispute resulted in numerous strikes by British Gas engineers, backed by the GMB trade union. The engineers were asked to sign new contracts which required them to work longer hours, for no additional pay. Originally, around 1000 engineers refused to agree to the changes to their employment contracts and as a result, British Gas deployed a ‘fire and rehire’ strategy forcing the engineers to choose between accepting the new contractual terms or being dismissed. Many engineers, though disgruntled, agreed to sign the new employment contracts, but Centrica, which owns British Gas, confirmed that 2% of its staff (around 500 employees) decided not to accept the new employment contracts and as a result were dismissed. Could this be the next class action claim to hit the employment tribunal?
In this article, Michelle Chance (Partner) and Choy Lau (Senior Associate) explain the options open to employers when employees refuse to accept new contractual terms and discuss whether the ‘firing and rehiring’ of British Gas employees could amount to unfair dismissal under the Employment Rights Act 1996 (ERA).
What can an employer do if employees refuse to agree to new contractual terms?
Except in exceptional cases, where the employer has an express and enforceable right to change an employee’s terms and conditions of employment (which goes beyond the scope of this article), an employer seeking to change employees’ terms of employment, will need to consult with the employees either individually or collectively if more than 20 employees are potentially affected by the new contractual terms, with a view to reaching agreement to the proposed changes. Such consent should ideally be documented in writing. Where agreement cannot be reached, the employer has two options (i) impose the contractual changes without the employees’ consent (make unilateral changes) or (ii) dismiss the employees and offer re-employment on new contractual terms (‘fire and rehire’).
(i) Unilateral changes
An employer imposing changes to employment contracts unilaterally, without the employee’s agreement, will be exposed to claims for breach of contract and, where pay is reduced, unlawful deductions to wages. Both claims can be made whilst the employee is still employed, provided that the employee has not expressly or impliedly accepted the new contractual terms e.g. by signing a new contract or continuing to work under the new contractual terms without raising objections. Where the changes made to the contract amount to a fundamental breach of contract that goes to the root of the contract (for example a substantial reduction to pay or status), the employee could resign and claim constructive dismissal.
(ii) Fire and re-hire
Alternatively, the employer could dismiss the employee and offer to re-employ them on new contractual terms. The employer would need to give the employee notice of termination in accordance with their existing employment contract (or pay them in lieu of notice where their contract permits this), otherwise the employee could claim breach of contract in addition to unfair dismissal.
This process of ‘fire and rehire’ exposes the employer to claims for unfair dismissal, however, the employer may successfully defend such claims if it can establish:
a) that the reason for dismissal was for “some other substantial reason” (SOSR), a general “catch all” business reason; and
b) that it acted reasonably in dismissing the employee for failing to agree to the new contractual terms.
An employer seeking to rely on SOSR as a fair reason for dismissal under the ERA will have to persuade an employment tribunal that it had legitimate business reasons for dismissing the employee for refusing to agree to the new contractual terms. The tribunal should not substitute its own opinion for that of the employer on the question of whether the changes proposed to the employee’s contract were advantageous to the employer’s business. Instead, the test is whether a reasonable employer, in those circumstances, would consider the business reasons to be “sound” and sufficient to justify the changes proposed to the employee’s contract.
In addition, the employer would have to show that it acted reasonably in dismissing the employee for refusing to agree to the proposed contractual changes. In practice, this means that the employer would need to show that it had undertaken a reasonable consultation with the employee (or their trade union/elected employee representatives) prior to dismissal.
Potential for unfair dismissal claims by British Gas engineers
The British Gas engineers that did not agree to the new employment contracts were dismissed recently, and any employees wishing to bring claims against British Gas will need to engage in ACAS early conciliation before initiating unfair dismissal proceedings at the employment tribunal. So, it may be a while before we learn of any actual claims.
Centrica has stated that the changes to engineers’ contracts were necessary to “give customers the service they want” and “to protect the future of the company which has seen its profits halve over the last 10 years”. It therefore seems likely that British Gas will try to defend any unfair dismissal claims on the basis that the dismissals were fair “SOSR dismissals” following a period of unsuccessful consultation with the employees’ trade union, and were made with a view to avoiding compulsory redundancies.
Any employment tribunal claim brought by an ex-British Gas engineer will be decided on its particular facts and circumstances. On the face of it, British Gas does appear to have potentially legitimate business reasons for making changes to the engineers’ employment contracts (customer requirements and ensuring profitability to protect jobs). We do not know the full extent of the proposed changes to the employees’ contracts or the consultation process that was followed in order to properly assess the merits of any such potential unfair dismissal claims against British Gas. However, the claims are unlikely to be ‘clear cut’ cases of unfair dismissal despite the unenviable situation that the British Gas engineers found themselves in; having to choose between unfavourable changes to their employment contracts, or unemployment.
Even if the engineers were successful in their claims of unfair dismissal against British Gas, the company may seek to limit the value of the employees’ claims by arguing that the engineers failed to mitigate their losses by unreasonably refusing to agree to the new contractual terms. Whether a particular employee’s decision to reject the new employment contract was unreasonable will depend on the specific circumstances of the individual employee in question. In this case, the changes proposed had the effect of increasing the engineers’ working time, for no additional pay. If the amount of additional working time required by British Gas had the effect of significantly reducing the employee’s basic pay or the employee was unable to agree to the changes due to personal circumstances e.g. childcare responsibilities, it is unlikely that a tribunal would reduce the employee’s compensation for failing to mitigate their losses by refusing to accept the new contractual terms offered by British Gas.
Top tips for employers wishing to encourage employees to accept contractual changes
- Ensure employees understand the reason for the changes and whether they are being introduced for a limited period only, or constitute permanent contractual changes. If employees understand that the changes are being made to save costs in order to avoid compulsory redundancies, they are more likely to accept the changes.
- Allow employees to express their views on the potential changes. Be empathetic towards their concerns. Employees want their voices to be heard even if you can’t ultimately accommodate their wishes.
At Rosenblatt Limited, our specialist Employment Team advises both employers and senior executives. If you are an employer wishing to amend employees’ contractual terms and you need advice, we can guide you through the process. If you are facing class action claims for unfair dismissal, our specialist employment litigators can assist you in defending such claims. If you a senior executive and you are facing a similar situation to the British Gas employees, please do contact us.
