13 February 2006
When considering changes to the business, variation to the contracts of employment are often considered fundamental in order to allow the flexibility of businesses to respond to the changing environment and market. There is a general misapprehension that provided an employer can demonstrate a “good business reason”, they are allowed to implement variations to contracts of employment on the basis that anyone who refuses to accept such changes can be fairly dismissed for one of the five potentially fair reasons for dismissal, “some other substantial reason”.
Whilst in theory this may be true, for an employer to be in a position to rely on the “some other substantial reason” argument, they will be required to follow various steps and ensure an adequate period of consultation.
In the recent EAT decision of William Oak Developments Limited t/a Windsor Recruitment v Silverwood & Others 2006, the Employment Appeal Tribunal (EAT) held that dismissal of employees for refusing to sign new contracts of employment with restrictive covenants was unfair, although found that the question of the reasonableness of the new restrictive covenants should only be considered as part of the whole context of whether it was fair to dismiss, taking into consideration all the surrounding factors. The fact that the restrictive covenants were wide and unenforceable did not in itself make the dismissal unfair. This recent decision will help employers determine important factors that should be considered by management before implementing changes to the contracts’ of current employees.
The employees were employed by William Oak Developments Limited (W), a company specialising in the supply of agency workers for the health and associated services. W had experienced a number of difficulties, which had resulted in employees being poached, and the leaking of confidential information. W had learnt the hard way; the effect of badly drafted contracts of employment, having lost staff and confidential information and therefore decided that it was going to take a stand in order to avoid any further losses.
Facts
W's employees were presented with new contracts that introduced a number of restrictive covenants. Some employees chose not sign the new contracts. W gave these employees notice of dismissal two weeks' late, on the basis that W was seeking to protect its business and therefore it would fall under a potentially fair reason for dismissal, i.e. some other substantial reason.
The Tribunal decision
The employees brought unfair dismissal claims and the Tribunal found that the new restrictions introduced were unreasonably wide and for that reason the employees had been unfairly dismissed. The Tribunal felt that W had sought to introduce the covenants in a heavy-handed way by telling employees they had half an hour to sign the new contracts, providing them with insufficient time to read the contracts or take legal advice, giving no warning that staff who refused to sign would be dismissed and by telling staff that unless the contracts were signed the following day commission already earned would not be paid. W appealed the Tribunal’s decision and the decision was upheld by the EAT; however its decision was based on different grounds.
The EAT approach
It held that the tribunal’s reasoning for finding unfair dismissal was wrong and the correct approach to take when considering whether dismissals are fair, would be to consider a three stage test in a situation where an employee is refusing to accept new terms:
1. Firstly, when considering if the employer is relying on some other substantial reason as a fair reason for dismissal, ensuring that the reasoning is not a “whimsical or capricious reason, which no person of ordinary sense would entertain”.
2. Secondly, a Tribunal should then consider whether the employer had a genuine belief that the dismissal fir that reason was justified
3. Thirdly, is the Fairness stage, where a Tribunal will consider the actual reasonableness of the new contract is considered, which includes considering the enforceability of the restrictive covenants themselves.
What does this decision mean for employers?
Introducing changes to contracts of employment should be carefully thought through and consideration for the justification behind any changes should be documented. Good sound business reasons must be demonstrated.
In order for any changes to be considered reasonable, the introduction of any changes should include a period of consultation and reasonable notice.
If restrictive covenants in particular are introduced, employers should ensure they are tailored to the employer’s individual business needs so that they are more likely to be held enforceable. As a general rule, the longer and wider the restrictions are, the more likelihood there is for enforceability to be challenged.
In some cases, it may be appropriate to offer employees an opportunity to seek legal advice, particularly in cases where restrictive covenants are introduced.
Conclusion
This case shows that once again, that whilst employers may have legitimate business reasons for introducing changes to contracts of employment, it is not enough on its own and failing to follow through a well thought out and managed process, will result in subsequent findings of unfair dismissal.