Rewriting staff contracts is one way for employers to cut costs and protect the business - but it may not be the wisest.

As the, economic downturn deepens, your company will probably be looking for more ways to cut costs. Even if you are not in line for redundancy, what happens if your employer decides to rewrite your contract of employment? Constantly changing market conditions are likely to prompt many businesses to make amendments to staff contracts. In some cases the aim is to save money, in others it is to protect the business. Changes can vary from introducing anti-poaching agreements preventing former employees from stealing clients, to increasing hours of work or cutting pay.

An employer's ability to make changes depends to a large extent on the strength of his or her bargaining position. But employees do have rights if their employer tries to change their terms of employment without consultation and agreement. The courts have established that any reductions in pay with out agreement, even to a small extent, amount to a serious breach of contract.

Unilateral changes in contract resulting in the loss of a car, a reduction in holiday or a suspension of employer's pension contributions, are also likely to constitute a serious breach of contract, the consequences of which could be very expensive for the employer.

Employees have a choice when such changes a made: they can ignore the breach of contract; accept the changes and continue work normally; they can object and continue to work under protest; or they can leave.

This last option gives staff the option of treating the contract as having been unlawfully and immediately terminated. This is known constructive dismissal.

Employees' right to treat themselves as having been, constructively dismissed not restricted to situation where they suffer a financial loss. A common situation where a senior executive, stripped of his or her authority or is unceremoniously removed from the board of directors. Other triggers include forced relocations.

Employers usually have to weigh the risks involve pushing through change contracts of employment. The deciding factor is often the extent to which the t fits outweigh the risk involved.

If employees are worried about their jobs, some employers may take the view that the risks are somewhat lower than they would be in a boom. In some situations employers prefer to buy consent to changes rather than have a confrontation. This can be achieved by introducing amendments to contracts at the same time as offering a pay increase or a promotion.

When agreement has not been reached, employees who feel they have grounds for constructive dismissal do not have to walk out as soon as the changes are introduced. They are entitled to a reasonable period of thinking time in which to reach a decision.

What constitutes reasonable thinking time varies according to circumstances. In one case, an employee who delayed two months, before deciding he was not prepared to move to a new site was judged to have waited too long. He failed in a claim for constructive dismissal.

However, in a Court of Appeal case, a foreman who was told that his wages would be reduced at the end of the month and who protested was able to leave three weeks after the end of the month and still claim he had been dismissed.

Unhappy employees who remain at work while they consider their position should indicate to their employer, preferably in writing, that they do not accept the changes. The risk is that if they fail to do so they will be deemed to have accepted the changes. Employees unwilling to take the constructive dismissal route should seek to minimise the effect of changes to their contracts by negotiating short-term amendments on the understanding that when the employer's financial position improves, full rights will be restored. The objective is to be flexible, perhaps negotiating reduced hours or longer holidays in return for reduced pay.

If an employee can establish that he or she has been constructively dismissed, there are two potential claims one contractual and the other statutory .In a case of constructive dismissal, the contractual claim relates to the employer's failure to give the employee proper notice of dismissal. In the last resort, such claims are normally pursued through the courts, although employment tribunals can currently make awards of up to £25,000 in breach of contract cases. The starting point for the calculation of damages in such cases is the value of the net salary and other benefits (such as pension contributions or the use of a car) that the employee would have received that notice period.

The statutory award for unfair dismissal usually consists of two parts. First, there is the basic award, which, depending on the employee's age and length of service, is currently a maximum of between £120 and £360 for each completed year a of employment. The second part, the compensatory award, is currently limited to a maximum of £51,700. The precise amount is decided by the employment tribunal based on a range of factors including the likelihood of the employee finding a new job.

In order to be eligible to e bring a claim in respect of unfair dismissal employees must normally have completed one year's employment by the time their employment ends. Claims (whether statutory or contractual) must normally be submitted to the employment tribunal within three months of the date of dismissal. This will be the date on which employees walk out, treating themselves as having been dismissed.

If you are thinking of treating yourself as having been constructively dismissed you should consider the financial consequences very carefully before acting. If your employer refuses to reach a swift settlement, you may face the prospect of being without money until you find another job. In addition, no employer facing potential legal action is likely to be, willing to provide a reference while the dispute continues. It is worth remembering that no employer is under a legal obligation to provide a reference to help in that search for another job.

In the light of this, as many workers have already decided, keeping a job may be preferable to compensation and a P45.

First published in the Financial Times on 20 March 2001.