Jenna Poon: Legal pitfalls of changing a benefits strategy

HR practitioners need to be aware of the potential legal pitfalls when making any changes to their employee benefits.

Employers need to ensure that the benefits being replaced do not form part of an employee’s terms and conditions, that they are not cemented in contracts of employment. If this is the case, an employee’s consent will be required in order to change those benefits.

When examining employment contracts, any collective bargaining agreements should also be reviewed to ensure they do not provide for information and consultation obligations on the employer in the event of a change in employee benefits. It is rare that there will be consultation requirements, but this should be checked.

Even if a benefit does not expressly form part of an employee’s terms of employment, this does not necessarily mean it might not be an implied term.

Employees may argue they have an acquired right to the benefit based on the fact they have received it for a number ofyears and have an expectation of continuing to do so. If they are successful in any such argument, any change to the benefit that is detrimental to them will be a breach of their employment terms.

Most benefit policies contain express wording providing that the benefits are discretionary in nature, but in certain countries this in itself might not defeat any acquired rights arguments.

Finally, once new benefits are to be put in place, to avoid any of the above pitfalls, employers need to ensure that any benefit rules and communication documents clearly and explicitly state that the benefits are discretionary in nature, subject to change depending on policies in force from time to time, and that participation in any one year does not necessarily mean that future participation is guaranteed.

Jenna Poon is an associate at Freshfields Bruckhaus Deringer