Can I dismiss someone who won't agree to a variation to their employment contract?

What can I do if an employee refuses to accept new contract terms?  Can I simply dismiss them?

We do get asked this question by employer clients from time to time and it’s a sensible starting point.

In short, an employer cannot “simply” dismiss an employee who refuses to agree to a variation to the terms and conditions of their employment without potential consequences.

If the variation is clearly allowed by an express term of the contract and the employee refuses to accept this, you may be entitled to take disciplinary action against them for failing to comply with a reasonable management instruction. For instance, if you changed an employee’s shift pattern in accordance with an express provision in the “hours of work” clause in their contract and they subsequently refused to attend work on the new shift pattern.

If the employee concerned has less than two years’ service, you might also be able to dismiss them as they cannot claim unfair dismissal.  Even then, however, there is a risk an individual might seek to claim that the reason they have not complied is connected to a protected characteristic and because of that characteristic they are unable to work the new hours requested. This could lead to you facing a potentially expensive discrimination claim.

So even in circumstances where there is an express wording that allows you to vary the contract, there is no guarantee that you can simply dismiss an errant employee without consequences.

Further, even if that were not the case and no potential Employment Tribunal claims are likely to arise, we would rarely advise that it is OK to proceed straight to dismissal without considering other consequences that might arise, such as a deterioration in workplace relations, increase in staff absences, grievances, turnover and so on.

Does this mean that I can’t dismiss the employee?

No, it doesn’t, but dismissal should always be a last resort, and the aim should be to try to introduce the contractual change by obtaining the agreement of the employees (or in the case of unionised workforces, then by seeking the agreement of the recognised trade union).

If I do ultimately dismiss an employee who won’t accept a change to their employment contract, what is the most likely consequence?

The most likely consequence of dismissing an employee in this situation (if the employee has more than 2 years’ service), would be an unfair dismissal claim.

Most employers will be familiar with unfair dismissal in the context of, say, misconduct cases or situations regarding poor performance or ill health and redundancy.  Where an employer has dismissed an individual for one of those reasons, the employer has to show what the fair reason is, and also that it followed a fair process in using that reason when dismissing the employee who has brought the claim.

It’s the same with a claim by an individual dismissed for refusing to agree to a contractual variation. In this case however the employer will have to rely on the dismissal being fair for “some other substantial reason” or “SOSR”.

What is “SOSR”?

SOSR is, in broad terms, a “cover all” category of fair dismissal covering dismissals which do not neatly fit into the other four categories of fair dismissal (for the sake of completeness these are conduct, capability, redundancy and illegality). Dismissal of an employee for refusal to accept changes in terms and conditions of their employment is probably the most common type of SOSR dismissal.

How would I show that my dismissal of an employee in this situation was a fair SOSR dismissal?

First, you need to be able to show that the reason you dismissed the employee was a substantial one. Second, that you acted reasonably in deciding to dismiss the employee.

The first of these typically only requires you being able to show that the reason was not insignificant. You will have to show that there was a sound business reason for the proposed change to the employee’s terms and conditions of employment. This is not necessarily a high hurdle though, for instance, it does not have to be a reason that the Tribunal panel itself might consider sound, but one which a reasonable employer would consider to be sound. The change does not, for instance, have to be one that is critical to the future of the business. At the same time, it can’t be a change for a trivial reason, and you will need to be able to evidence that there were business issues that you, acting sensibly, believed justified you wanting to introduce changes to employment contracts. A trite example of something that wouldn’t meet this threshold would be you wanting to reduce employee pay simply to fund a pay increase for yourself.

The second aspect of a fair SOSR dismissal is whether the Tribunal believes the decision to dismiss the employee for SOSR was reasonable in all the circumstances of the case. Strictly speaking this has a neutral burden, but in practice if the employer is unable to show that it followed a fair process before it took the decision to dismiss, a Tribunal is highly likely to decide that the dismissal was unfair.

The key to this is the consultation process with the employees (and in appropriate cases also with employee representatives).

At this point in time there is no statutory guidance as to what process an employer ought to follow in discussing matters with employees (although the Government has announced that a Code of Practice will be issued in due course which ought to provide greater clarity as to what a fair process has to involve). In the meantime, guidance from case law makes it clear that a fair process involves:

• Consulting with the employees (and, where necessary, elected representatives) about the business reason behind the proposed change. Note that this is “consulting” not “informing”, which means genuine dialogue over a period of time, i.e. one meeting will not suffice.
• Giving employees the opportunity to discuss any concerns and explain the reasons why they are not willing to agree to the change.
• Warning employees of the risk of dismissal if the change is not accepted.
• Exploring alternatives, including alternatives to dismissal.
• The employer balancing its needs against the needs of the employee.
• Considering whether any other internal procedures have been complied with.

As we have stated, the underlying business reason or an employer wanting to change employees’ terms and conditions is important, but not overly so in the context of considering whether the dismissal of an employee who has refused to agree to a contractual variation is fair or unfair. The process by which the employer reached the decision to dismiss is far more important.

We will be looking at the process side of SOSR dismissals in the coming weeks so keep a look out for further comment from us on this point.

In the meantime, if you are considering asking employees to accept new terms and conditions of employment and would like an initial view from us as to the adequacy of your reasons for the change, and the approach you may wish to take to complete the process then please get in touch with one of the Gateley Legal Employment team.