Employers can have more confidence that an “entire agreement” or “no oral modification” clause in an employment contract is likely to be effective in preventing extraneous contractual terms or oral variations respectively, following a Supreme Court ruling overturning the Court of Appeal in Rock Advertising Ltd v MBB Business Exchange Centre Ltd (see our Litigation blog for further details). The Supreme Court in Pimlico Plumbers referred to this ruling confirming its applicability in the employment sphere.
Employers wishing to change terms of employment should bear in mind that imposing a change unilaterally may not be effective even if the change is of immediate practical effect and the employee continues to work without expressly stating that this is ‘under protest’. The employee’s agreement to a change wholly to the employee’s disadvantage will only be inferred if this is the only reasonable explanation of the employee’s conduct in continuing to work. Protest or objection at a collective level may be sufficient to negative any inference of acceptance. Further, where the employer has (wrongly) represented to employees that its actions are within the current contract and therefore are not a variation requiring acceptance, this will weaken any argument that acceptance should be inferred from continuing to work.
Employers seeking to reduce pay by consent may choose to offer a one-off payment as compensation for the reduction and in return for avoiding the risk of litigation. If this offer is rejected, and the employer decides to dismiss and offer a new contract with the reduced pay terms, its failure to also make the one-off payment to those dismissed will not itself make the dismissals unfair.
Whether the dismissals are fair will depend on balancing the employer's business reasons, the extent to which it consulted with staff and attempted to agree changes, and the degree of impact on the employees. Here, although the impact was significant (an 18% pay cut in some cases), the employer's action was reasonable given that the business's long-term viability was at risk if costs were not reduced, it had taken other steps to reduce costs, and the relevant pay structure was divisive as some employees were on lower rates and some on higher pay were receiving more than the market rate. The level of employee acceptance of the change is also a relevant factor. (Slade v TNT (UK), EAT).
The Supreme Court has referred to the ECJ the issue of employees' rights following a TUPE transfer where their contracts provide for pay to be set by a collective agreement negotiated by the transferor and union. Transferees who have acquired staff with such contractual terms (most commonly ex-public sector employees) now face a period of uncertainty and, potentially, the prospect of having to abide by terms over which they have no control. Putative transferees should build this risk into their position on price and indemnities.
The Court of Appeal had ruled that in these circumstances pay rights are frozen at the time of the TUPE transfer and that new pay rates set by collective agreements negotiated by the transferor post-transfer do not bind the transferee (the "static" approach). This overruled previous EAT case law adopting the "dynamic" approach allowing employees to benefit from post-transfer pay increases agreed by the transferor. In doing so, the Court of Appeal relied on a decision of the ECJ interpreting the Acquired Rights Directive as only requiring the static approach.