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Contracts

I sit on the board of a company that has recently agreed to a contract that has an element of unlimited liability in the small print. This has raised a concern at board level about our personal liability and what we could do to mitigate it. What exposure does a director have for a commercial decision that is not taken negligently or apparently recklessly?

The standard of care required for directors is that of a reasonable diligent person. This assumes that the director has the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same function as are carried out by the director in relation to the company. It also takes into account the general knowledge, skill and experience that the director has.In practical terms, this means that a person should not take on a directorship unless he is sufficiently qualified or experienced to be able to fufill the function that he might reasonably be expected to carry out. Furthermore a particularly highly qualified or experienced director must exercise that high level of skill and expertise in carrying out his duties. Directors must also exercise their duties diligently and keep themselves informed about the company's affairs and join their co-directors in supervising them and controlling them. This does not prevent a director from relying on the experience and expertise of his colleagues nor, generally does it prevent sensible delegation or division of tasks, provided that the director does not attempt to absolve himself entirely of responsibility delegating to others. So, provided these criteria are fulfilled when making a commercial decision (together with consideration of the list of factors contained in the Companies' Act 2006) and as long as there is no manifest recklessness and negligence involved, a director could probably be absolved of responsibility. Your company could consider taking out directors and officers liability insurance although there are limits to what this will cover.   


We are currently experiencing a downturn in our order books and rather than go through redundancies we would like to reduce the hours of work for employees. Are you able to vary the contracts of employment?

Firstly, check to see if the terms and conditions of your employment contracts will allow for hours to be reduced. The wording in the contract may be wide enough to allow for flexibility about working hours. An example would be where the contract did not stipulate a specific number of hours, but instead just required the employee to work such hours as would meet the requirements of the business. There are also some employment contracts that include express provisions allowing the employer to make changes to particular terms.  If there is no express power to vary, the best option would be to try to get the agreement of the staff. However, if the employees are not willing to give their agreement to the variation you may decide to impose the changes or to dismiss staff and offer to re-engage them on the new terms and conditions. When you unilaterally impose new terms and conditions on the employee, you are breaching the contract of employment. This is a potential risk to the business as the employee may continue to work under the new terms under protest and at the same time bring a claim for compensation. If the reduction in hours is dramatic the employee may resign and make a claim of constructive dismissal.  The best that can be hoped for is that the employee will work the reduced hours and be taken by this conduct to have given implied agreement to the variation.  In relation to the dismissal and offer of re-engagement, the risk is clearly that the employee will reject the offer of re-engagement and be found to have been unfairly dismissed.


We are planning to move to a new office location which is not local. Some staff may choose not to move and leave instead. I would be very happy for everyone to move. However, some of our staff do not have a contract with us as they were the result of a TUPE transfer. We have not yet issued new contracts to them and they were never given one by their previous employer. What process should be undertaken with them?

As there are no written contracts (and in particular a mobility clause) then you will have to undertake the process of redundancy consultation for those staff without a con- tract. The basis of redundancy consultation is a requirement to move offi ce location due to a cessation of work in the current location.

The fi rst stage in this process is for you to make an announcement to all the staff involved. The announcement is that you are entering into a redundancy consultation with them due to the offi ce location being moved. Explain the business reasons for the move. Ex- plain that there are jobs for all at the new of- fi ce and that you hope that they will all move over. Announce that you will conduct consul- tation meetings with all staff and they will be kept up to date of developments at all times.

Once you have made the announcement, al- low the opportunity for employees to ask any questions and they may decide to provide you with an inclination to move or not. If they wish to move then you need to address top priority of not having a contract of employ- ment in place.

If employees do not wish to move then you will have to look at the offer of alternative employment opportunities within the busi- ness and should none be available then you have no option than to opt for compulsory redundancy.


Following a pay review we are proposing to issue updated contracts of employment to staff. Can we simply issue the new version to staff or do we need a signed copy on our files indicating agreement to the new terms?

Whilst there is no legal obligation to get an employee to sign their statement of terms and conditions, it is certainly best practice to do so.

Provided an employee works under the terms and conditions and is paid in accordance with the terms issued, an employer could try to rely on "deemed acceptance" of the terms. Problems arise if an employee objects, verbally or in writing, to any element of the contract, in such circumstances you should try to resolve the problem otherwise you should not rely on the concept of deemed acceptance.


Given the current economic climate, is it possible to lawfully reduce employees’ salaries and, if so, what do I need to consider?

Over the past 12 to 18 months, the majority of businesses have had to consider making redundancies. But to avoid the expense of redundancy and in an attempt to retain talented staff, many employers have looked at implementing alternative cost-saving measures.

Historically, tribunals have seen implementing a reduction in salary as a draconian measure. But, from experience over the past couple of years, they have become receptive to this measure if it is carried out as a genuine means to avoiding redundancy.

The first step to consider is whether there is a sound business reason for implementing the change. An employer doesn’t need to demonstrate that the change is integral to the survival of the business, but simply that there is genuine business reasoning behind it. They then need to demonstrate that they have carefully considered all the alternatives and that, having done so, the implementation of a salary reduction is reasonable.

The next step is to consult with all affected employees and look to gain their consent. This process should be documented with clear reasons for the proposed changes being provided to employees. Employers need to consider that the consultation process is a two-way exercise, and employees’ opinions should be sought and
carefully considered.

Having completed a thorough consultation exercise, employees should be invited to confirm whether or not they are willing to provide their consent. As a general rule, where the majority of employees agree, this places the employer in a stronger position at a later stage when arguing that it was unreasonable of the
dissenters not to provide their agreement.

Those that don’t agree should be informed that the business intends to implement the changes, and that if they are unwilling to provide their consent, they will be invited to a dismissal meeting.  Ultimately, if consent is not obtained, employees should be dismissed with notice and offered re-engagement upon the amended terms. Therefore, if the business faces claims for unfair dismissal, it will be well-placed to argue the dismissal was both procedurally and substantively fair for some other substantial reason.

From recent experience, employers will be encouraged by the positive response from employees who tend to view these changes as the lesser of two evils, given the alternative of losing their job at a time where vacant positions are in short supply.