Beware of Breaching Unwritten Contracts

Last Updated Aug 26, 2009 8:09 AM EDT

Companies looking to cut costs and avoid layoffs can sometimes risk a serious backlash from staff.

I've seen firms implement pay freezes, introduce flexible work practices, and make big alterations to their pension plans. The more radical are even talking about lending staff to competitors.

These types of change can be difficult to put in place. Firms have to plan carefully and consider how any change may affect compliance with the law.

Changes like these often breach contractual terms and conditions of employment or agreements made with trade unions. Consequently they need careful thought, communication and often consultation and collaboration with staff to enable successful implementation.

There have been some notable exceptions of management failure, such as British Airways' very public spat with its staff. But most businesses have handled the impact of this kind of cost-cutting pretty well. Some, like KPMG has even gained some great PR to enhance their brand reputation in addition to saving significant sums.

But for all the big-ticket changes that work successfully, there are lessons still going unheeded about how to manage staff during tough times.

Companies tend to lose sight of the effect of small, less dramatic changes, which can still have a big impact.

This points up a wider problem around the employment relationship, the one beyond pure written terms and conditions.

The relationship between staff and employer is governed by a more complex set of unwritten expectations -- the so called psychological contract. Employees may commit to working hard for the organisation in return for professional development opportunities. Or, they may help out others in the organisation in return for career enhancement or other forms of recognition.

A major risk during downsizing or restructure is the damage they may wreak on unwritten expectations.

How do you avoid such reactions, especially if you're not a senior decision-maker?

  • First, understand the nature of your unwritten contract. Think about what your team -- or, if you're a director, the different teams -- expect from working at your business.
  • All changes normally affect staff in some way and should be assessed in terms of potential impact -- the extent to which changes are seen as unfair will determine the level of outcome, from acceptance, or mild discontent to complete disengagement. If you can anticipate who is likely to be affected and the scale of disaffection, you can plan to avoid or mitigate it.
  • Fair change communicated badly can have the same effect as change that's deemed unfair. Be sure to communicate ahead of any implementation why change will be occurring and articulate the business reasons for making that change.
  • Alternatively, be bolder and collaborate with the workforce on the need for change -- if people understand that they will have to accept change to survive or thrive during and beyond recession, you may be surprised with the nature and scale of what can be achieved.
Businesses with a change agenda need to arrive at a revised set of expectations -- and will have to work hard to retain commitment from people throughout the process.

(Pic: Mike_fleming cc2.0)

  • Stuart Woollard

    Stuart Woollard is Managing Director of the King's College London HRM Learning Board. After gaining over 10 years' senior level business and consulting experience, Stuart worked as a global HR Director in the financial services industry and was also Managing Director of UK operations. Stuart's areas of expertise include business strategy, people strategy and performance, organisational development and change management. He has published research on the role of HR in international mergers and acquisitions (CIPD) and on the impact of the current recession on HR and the workforce. Stuart makes regular contributions on HR issues to a variety of industry and special interest groups.