Employment law and flex

This fact sheet is designed to highlight some of the areas that relate to the implementation and operation of a flexible benefit plan for an employment law perspective. We must point out that each organisation's legal situation will be different and good advice is always sensible when making changes to terms and conditions of employees. However, we hope this provides a useful overview of some of the key areas.

Background

There are various legal issues that need to be addressed when implementing flex and these largely centre on that the introduction of flex will constitute a change to an employee's terms and conditions of employment.

Employment contracts

A good starting point is to establish whether all employees are on the same contracts or are there different groups ion the organisation with different terms. Once this has been done, you will then be able to review each contract and establish the current contractual elements that relate to benefits. It will also be sensible to review the contractual aspects for maternity and paternity leave.

It is important to establish the contractual commitments and to establish whether can be varied and if they are discretionary.

Often, modern contracts will contain something along the lines of "the Company reserves the right to withdraw or alter the terms of the scheme without notice at any time or to exclude you from participation in the scheme". This provides the employer with the right to unilaterally vary the contracts and should go a long way to avoiding any employee legal challenges about changes.

Whilst contracts might allow unilateral change, it is always best if employee consent is obtained before making the changes to the benefits. If salary sacrifice is being used as a method of funding the benefits, then consent will be a requirement.

Maternity, paternity and adoption leave

Where organisations provide employees with above the minimum statutory benefits and flex is being operated, a potential problem arises where an employee's pay reduces to the statutory minimum (which has been forgone to fund benefits provided under the flex plan) and they can no longer have sufficient income to fund the benefits.

Whilst it may be possible for the individual to pay for benefits from personal income, it is usual to suspend them from the flex plan until they return to work and their benefits (above core levels) would normally cease.

If this is not addressed an employee might potentially claim for breach of contract for the failure to provide the benefit. The use of core benefits and clear rules surrounding this issue will normally be sufficient to ensure no problem arises.

Harmonisation of terms and conditions of employment

As the introduction of a new or revised benefit offering will lead to changes of terms and conditions, many employers use this process as an opportunity to harmonise other aspects of their terms and conditions. Areas to consider include aligning salary review dates, harmonising holiday allowances, notice periods and sickness policies.

Changing terms and conditions

Without a unilateral right to change employees' terms and conditions, mutual consent will need to be obtained before the changes can take place. Any changes imposed are likely to be a breach of contract and lead to the employee seeking damages or claiming unfair constructive dismissal. Having said that, most employees are only likely to object if the change is to their detriment.

Terms and conditions can be changed in a number of ways. These include:

• The changes can be agreed by the employer and employee or by the employee may accept a change by conduct, i.e. working under the revised contract without protest.
• The contract may allow changes to be made.
• Contracts may be changed under a collective agreement that is binding on individual contracts.
• The contract could be terminated and replaced by a new contract, i.e. effectively a unilateral change.

The last method of change is high risk and does normally sit well with the positives communication aspects of a new flex plan. Indeed, the best way is for both the employer and employee to agree to the changes. This can be achieved as part of the flex implementation process with consultation with employees taking place during the enrolment period.

Employee consultation and flex

It is essential that the employer consult with employees regarding the implementation of flex. This is practically best achieved by integrating the consultation with the implementation of the new plan.

An initial information pack is an excellent way to inform employees and start the consultation process. This should include a summary of the new flex plan and how it impacts them. It should give examples of salary sacrifice along with the restrictions that this system imposes. Information about tax and NI should also be given. This information should also make clear how other elements of pay are impacted, e.g. overtime, bonuses, holiday and sick pay. Other benefits like pensions and life cover that may be salary linked also need to be included. The pack should also address the issue of the change to terms and conditions and highlight areas that might mean the employee is disadvantaged.

Obtaining consent

Express consent

This is where employees consent to the changes and can be done as part of the benefit selection process. Typically, this is achieved by using a declaration at the end of the selection process.

Implied consent

Under this approach the employer provides employees with information and informs them about the changes that are taking place. The employees are told that they will be deemed to have accepted the revised terms unless they object within a specified time frame. Once this time period has elapsed, employees without objection can be treated as an implied consent to change.

As the flex plan will usually require each employee to select their own benefits, the express route is preferable and provides less risk of legal challenge and employee dissatisfaction.

Pensions and salary sacrifice

Many employers are identifying NI savings by changing the basis of their pension plans with the traditional employee contributions being switched to employer side and a salary sacrifice being operated to maintain cost neutrality.

Under flex, this change can be implemented as a mandatory element of the new benefit menu and express consent is made through the completion of the declaration at the end of the selection process.

For those employees that do not complete the selection process, an implied consent can be useful to manage these individuals through the process. It is likely that some will object and these individuals would need to be kept on existing contracts and remain out side the flex plan. As new entrants would not be offered a choice of how their benefits were structured, in time this opt out population is likely to decline.

Summary

A careful review of current contracts and good employee communication will provide a solid platform to implement the necessary changes to ensure your flex plan is well received and compliant. As we said at the beginning, these issues should be identified and then reviewed by an employment lawyer with a view to ensuring that all the technicalities are addressed and dealt with.

However, flex is normally popular with employees and we rarely find much hostility towards its introduction.