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Hundreds of British Gas engineers received dismissal notices after refusing to agree to “tougher” employment terms imposed by the company’s controversial ‘fire and re-hire’ scheme.

The new contracts imposed by Centrica, the owners of British Gas, required full time engineers to work an extra three hours per week and stipulated they would not be paid a higher rate to work ‘anti-social hours’ when required on weekends and public holidays. Whilst the terms were accepted by most employees and trade unions, the GMB staged over 40 days’ of strike action in protest against “mass sacking” and “bullying” of its members.

According to the Guardian, Centrica reported its weakest earnings on record earlier this year and has lost more than three quarters of its market value in the past five years. Furthermore, British Gas has lost over three million customers and seen profits halved over the past decade with 15,000 jobs being cut. The changes are geared towards safeguarding the future of the company.

The dispute has been running for over six months and according to the GMB, 350,000 planned annual service visits were cancelled resulting in a backlog of repairs at around 250,000 homes, a claim that Centrica dispute.

Is British Gas within their rights to change their employee’s contractual terms? If not, what are the consequences?

There are circumstances where an employer can lawfully change its employee’s contractual terms but the correct processes must be followed.

An employer may wish to make a change that is permissible under the terms of the contract as some contracts contain clauses entitling changes such as changes to location, responsibilities or more broadly to any term of the agreement. However, such a right has to be exercised carefully and subject to a reasonableness test. Even if there is such a clause in a contract, it may not be wise for an employer to rely on it in the case of varying an employee’s pay as there is a likelihood that this could breach the implied term of trust and confidence and could result in the employee resigning and claiming constructive dismissal if they have the qualifying period of two years.

In respect of varying pay, the employer could simply start paying the employee less without their agreement and issue a new contract reflecting this change, however this is not wise in most cases as it could result in a claim for unlawful deduction of wages and the employee could be entitled to receive back pay.

The most effective way to change an employee’s contractual terms is to enter into reasonable consultation with the employee (or their trade union/elected employee representative). If 20 or more employees are affected by the proposed changes then the statutory collective consultation rules must be followed. In both cases of collective and individual consultation the employers negotiating mechanisms may slightly differ but discussions should always take place about the reasons for the change, how it will affect the employees and the consequences of failing to agree to it. The employer must negotiate in good faith, taking into account the points raised by the employees and looking at alternatives to the proposed change.

Once negotiations with the employee have been concluded, if an agreement is reached the employer can issue new contracts and may not need to give notice to terminate the old one. If no agreement is reached, and the employer wants to proceed with the contractual change, they would need to give notice to each employee affected and issue a new contract coming into effect immediately after the original contract comes to an end. This will be dismissal and re-engagement which is also known as ‘fire and re-hire’. However, if the employee decides not to accept the new terms, then they will be dismissed.

This is something of a last resort for employers as it is seen as a high-risk approach. In taking this course of action employers should be mindful of the exposure to employment claims such as unfair dismissal and breach of contract. An employee may claim for breach of contract if they have not been given the correct notice or paid in lieu of notice where this is permitted in their contract.

An employee with two years’ service may bring a claim for unfair dismissal if they are dismissed as a result of failing to agree to a contractual change.  An employer may be able to successfully defend such a claim if they can show that the reason for dismissal was for “some other substantial reason” such as a legitimate business reason for the proposed change. An employer would also need to show that it acted reasonably in dismissing the employee for not agreeing to the new terms which includes properly consulting with the affected employees or trade union representatives. At the moment, it has not been reported as to whether Centrica carried out a reasonable consultation process in respect of the changes to the employee’s contracts. There are likely to be further industrial actions as the dispute continues and we will endeavour to provide updates accordingly.

If you wish to discuss changing terms and conditions of employment or for general employment law advice, please contact us via email or on 020 8858 6971.