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No need to include consideration for variation of contract in offer of reengagement

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In Slade and others v TNT (UK) Ltd the EAT held that, where an employer offers an incentive to employees as ‘consideration’ to secure agreement to vary their contracts, it is not unreasonable to exclude that buy out sum as part of an offer of re-engagement following dismissal where there has been a failure to agree.

Where an employer has no contractual right to change a term of the contract then the route often chosen to bring about variation is to first seek change by mutual consent and if that is unsuccessful, dismiss the employee for some other substantial reason and offer reengagement on new terms. For consensual contract variation to be valid, there must be ‘consideration’, i.e. something of value being gained by both parties. But if agreement is not reached, does the offer of reengagement have to include the consideration offered to the employee for the dismissal to be reasonable? In these difficult economic times, this was an important issue for the EAT to consider.

470 TNT employees were entitled to a contractual bonus. Following financial difficulties the company tried to secure the employees’ agreement to discontinuing the bonus by offering a lump sum to “buy out” it out, along with a warning that a failure to agree would result in dismissals, with offers of re-engagement on new terms that did not include the bonus or, the buy-out sum. Following failure to agree, 183 employees claimed unfair dismissal arguing that the company’s failure to offer the buy-out sum on re-engagement made their dismissals unfair.

The EAT upheld the tribunal’s decision that the withdrawal of the buy-out sum did not make the dismissals unfair. The buy-out sum had been offered to seek agreement to a variation to the contract. When the employees rejected the offer, there was no obligation on the company, as a reasonable employer, to include the buy-out sum in the offer of re-engagement as the employer would receive no benefit by doing so.

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