Changing an Employment Contract: Employer’s Right or Breach of an Employment Contract?

With the current state of our economy and the financial aftershocks of Covid19, have you thought of making a few changes to your employees’ employment contracts to provide some breathing space? The financial position of your business may even demand it or else you and your employees could be facing unemployment.?

If you answered Yes to the question then you’d have to consider how and when you could do this. Put simply, you cannot change the conditions in an employment contract that have been agreed to between you and an employee.

What is an employment contract?

This is an agreement between two people, where one person provides their services to another, on agreed terms and conditions,?in exchange for payment. As a contract it means the conditions cannot be changed by you as the employer without consulting your employee. Any changes that you want to make must be discussed and agreed to in advance by the employee. Any unilateral changes to any conditions in an employment contract will break the agreement, cancel the existing employment contract and replace it with a new one with conditions that an employee hasn’t agreed to. Very simply this means there is no agreement, which is a basic requirement for any contract or agreement to be valid.?

Before we look at what South African labour law says about the consequences of making changes to an employment contract without the employee’s consent, we need to separate this from management policies which can be changed by the employer without consultation or getting the employee’s agreement.?

What does the court say???

A recent Labour Court judgement confirms the rule of thumb that anything specific and entrenched in an employment contract or part of a collective agreement is regarded as a term and condition of employment, while anything not specified or entrenched in the employment contract will fall under management policy and can be unilaterally changed by the employer.??

Legal consequences of changing the employment contract without consultation

The Labour Relations Act (LRA) gives an employee the right to dispute any unilateral changes made to their employment contract by an employer and to demand that the employer not implement the changes, or, if the changes have already been made, to demand that the employer goes back to the original contract.??

If this has happened in your workplace, and the employee is correct, it means you are in breach of the contract of employment and your employee has the right to bring legal action against you for breach of contract. What does this mean for you? Well, the employee can accept the termination of the contract and claim compensation for any loss they may have suffered due to your failure to honour the contract. Or they can demand that you honour the contract as agreed and may even claim for any financial loss they may have suffered because they had to fight you on it, for example, the costs of using a lawyer.?

if you threaten to fire your employer or if you actually dismiss them because they refuse to accept the changes in their contract, or if you promise to withdraw this threat or dismissal if they just accept the changes, you will be liable for an automatically unfair dismissal. Your employee can take you to court for this.?

Economic climate demands change?

But what if your business needs to adjust, for example, if there is a recession and business is slow and you need to make changes to your employees’ contracts so that you can save your business or become more efficient? It is a well-known fact that businesses that are unable to adapt to a changing economic climate might well not survive. If this happens to you and you find yourself in a situation of having to restructure your business you might have to make changes to your employees’ contracts as part of this process.?

This was recognised in a recent Constitutional Court case where 253 employees were retrenched from a company based on the business’s operational requirements and its need to survive. The company said it had been necessary to restructure itself and as a result had to make changes to its employment contracts. The employees did not accept this and took the case to court. The Constitutional Court found that the dismissals were fair because the real reason for the dismissals was based on operational requirements of the business and not because the employees had refused to accept a unilateral change to their contracts by the employer.?What does this tell us? It means that you can’t use the restructuring of your business and retrenchment of employees due to operational requirements as an excuse to force employees to accept unilateral changes to their contracts.?

And even if you have genuine reasons for needing to make changes to an employment contract, it is also important that you follow the correct procedures.

What process should you follow??

Your first step is to have consultations with employees and the trade union if there is a representative union. The purpose is to discuss the retrenchments and look for alternatives or options to avoid any retrenchments.?This must be a real and genuine attempt to avoid the possibility of retrenching employees. If it is clear after the consultations that there are no alternatives to retrenchment, then your next step is to consult with employees and their representatives about a fair retrenchment process. This will include agreeing on things like severance pay for retrenched employees, the timing of retrenchments and the criteria that will be used to decide who will be retrenched.?

Ending off...

Let’s summarise this. You can unilaterally change anything in the workplace that is not entrenched in the employment contract or in a collective agreement. However, you can’t unilaterally change the conditions of an employment contract, without first consulting with the employees concerned and getting their consent and approval to make the changes. If an employee’s refusal is unreasonable and the change in the contract is necessary and rational, based on your operational requirements, then it is possible to go ahead with the retrenchment process. But it must be clear that the reason for retrenching an employee is genuine and not for the purpose of forcing them to accept unilateral changes to their employment contract as this could end up in court as an automatically unfair dismissal.

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4. ?Section 187(1)(c) of the Labour Relations Act 66 of 1995
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