Personal Finance: How to win the sack race

You may not be in line for being made redundant, but what happens if your employer decides to rewrite your contract against your will?

Contract changes vary from anti-poaching agreements - preventing employees from stealing clients - to increased hours of work or reduced pay.

But employees do have rights if their employer tries to change their terms of employment without consultation and agreement. The courts have established that reductions in an employee's pay without agreement, even to a small extent, amount to a serious breach of contract. Changes resulting in the loss of a car, a cut in holiday or a suspension of pension contributions are also likely to constitute a serious breach, with very expensive consequences for the employer.

Employees have a choice if changes are introduced: they can accept the changes and continue to work normally or they can leave. The latter course means that the employee is treating the contract as having been unlawfully terminated, known as constructive dismissal.

Constructive dismissals are not restricted to financial loss. A demotion or unwarranted relocation can give rise to a claim.

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 time to think over a decision. But be careful; one employee who delayed two months before deciding he was not prepared to move to a new site was judged to have waited too long.

However, a foreman who was told that his wages would be reduced at the end of the month left three weeks after this point and was still able to claim that he had been dismissed.

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. If they fail to do so they will be deemed to have accepted 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. 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 make awards of up to pounds 25,000 in breach of contract cases. The starting point for calculating damages is the value of the net salary and benefits the employee would have received in the notice period.

Awards for unfair dismissals are usually made up of two parts, one depending on the employee's age and length of service (between pounds 110 and pounds 330 for each year of employment) and a compensatory award limited to a maximum of pounds 12,000 (to be increased to pounds 50,000 when the Employment Relations Bill becomes law this year).

In order to be eligible to bring a claim of unfair dismissal employees must normally have completed two years' employment. This qualifying period is being challenged in the House of Lords, and will be reduced to one year by the Employment Rights Bill.

Claims, whether statutory or contractual, must normally be submitted to an employment tribunal within three months of the date of alleged dismissal - the date on which the employee walks out.

If you are thinking of treating yourself as having been constructively dismissed you should consider the financial consequences very carefully. If your employer refuses to reach a swift settlement you may find yourself without money until you have found another job. In addition, no employer facing legal action is likely to be willing to provide a reference.

It is also worth remembering that no employer is under a legal obligation to provide a reference. In the light of this, as many workers have decided, keeping a job may be preferable to compensation and a P45.

The writer is a partner and employment specialist with the city law firm Bird & Bird. He is also author of the `Which? Guide to Employment'