It is not uncommon for employers to look to reduce the costs of employment in difficult economic times. For some, this may even involve reductions in pay which, as well as being highly emotive, require changes to employee contracts and, consequently, legal difficulties.

Employees may be prepared to agree revisions to their contracts but, if they do not, the employer cannot unilaterally impose changes without risking breach of contract or even claims of dismissal or discrimination. The only course open to employers in that event is to take steps to bring the existing contract lawfully to an end. Just such a scenario arose in a recent case before the Employment Appeal Tribunal, the conclusions of which provide useful insight for employers into the reasonableness of such actions and the careful balance required of the interests involved.

In the case of Slade v TNT, the employer wished to reduce a contractual bonus scheme. Negotiations with its employees regarding a revised scheme failed to reach agreement with a sizeable minority of employees. Finally, the employer gave formal notice to the staff, with a view to lawfully terminating their existing contracts and, at the same time, offering new contracts excluding the bonus provision. A number of employees claimed unfair dismissal.

The tribunal established a potentially fair reason for dismissal (here, ‘some other substantial reason). It was then obliged to consider the fairness of the employer’s actions. In doing so, the tribunal acknowledged the importance of balancing the advantages to the business of the employer’s course of action, as against the effects it had on the employees. The main focus had to be on the reasonableness of the employer behaviour. The tribunal satisfied itself that the reason for the dismissals had been substantial, and was sound (or, at least, the business believed it to be), and that the employer had endeavoured to negotiate with the staff, and had highlighted the implications of a failure to agree. Having done this, it concluded the dismissals were fair in all the circumstances.

On appeal, the case was remitted to the tribunal to consider a number of issues. But a new and controversial issue also arose in this case. The employer had offered to “buy out” the loss of bonus in the course of settlement negotiations. But no such offer was repeated when the contracts were terminated. The employees argued that this was unfair and that the employer ought to have made up for the loss of bonus when it imposed the change, just as it had said it would when negotiating. The tribunal and EAT rejected this argument. They found the employer was entitled to take the view that a sum it had offered to secure an agreement, in this case to remove the risk of litigation, need not be offered where no agreement was reached and no consequential benefit resulted to the employer. To conclude otherwise, and to require a “reasonable” employer to honour a settlement offer in these circumstances, would inhibit any sensible negotiation between employer and employee.


Simon Rice-Birchall is a partner in the Leeds office of Eversheds LLP

Case ref EAT/0113/11