The contract of employment is an agreement between two parties to abide by whatever terms and conditions have been agreed. Terms of the contract may be written or oral and become legally binding at the point where both parties accept them.
There are several reasons why an employer may want to vary an employee’s contract. In some cases the employee will be willing to accept the variations, such as a pay rise or promotion, but in other cases it may not be possible to obtain an employee’s consent to a change in his or her contract.
Variation
The terms of an employment contract cannot be varied without the consent of both parties. If the employee agrees to the variation there is no problem. The employer should ensure that any agreement to vary is evidenced in writing in case of a later dispute.
Problems arise where the employer needs to vary the contract of employment in a way that the employee considers detrimental. The employee may refuse to agree to the change whilst the employer in the interests of the business may be unable to allow the contract to continue on the same terms. If the employer varies the contract without consent it is acting in breach of contract.
Faced with employee refusal to consent to variation an employer can:
- make the change without the employee’s consent and accept the risks associated with this or
- terminate the employee’s existing contract of employment with proper notice and offer a new contract incorporating the varied terms
How To Vary
The original contract could include a clause specifically allowing the employer to vary the contract in specified circumstances. For example, the clause could give the employer the right to change the employee’s job content or the right to alter an employee’s place of work or hours of work.
If the employer wants the right to vary, then any such express clause must be clear and unambiguous. In varying the contract subsequently, the employer must ensure that the variation is authorised by the provision.
Such a clause can allow for flexibility provided that the employer understands the potential limitations on the express right to vary. These limitations could, for instance, include a limitation not to act in a way that renders the employee’s performance impossible or not to act in a way that could destroy the mutual trust and confidence between employer and employee.
There may also be terms in the contract that, although not express, are wide enough to allow the employer to make the necessary alterations. For instance, the employer may wish to change the way in which the employee carries out his or her duties. However, cases in which the courts are actually willing to imply a right for the employer to vary, for instance varying the employee’s place of work, will be extremely limited. The most sensible thing for the employer to do if it anticipates that it might need to transfer an employee in the future is to include an express right to do so when the contract is first formed.
Variation By Consent
If an employer is not authorised to vary a contract of employment by an express or an implied term another option is for the employer to obtain the employee’s consent. If both parties agree to the alteration there will be binding change. It is only where the employer imposes a change on the employee without the employee’s consent that it may constitute a breach of contract.
The first steps to follow will be to consult with employees by:
- explaining the proposed change, the reasons behind it and what will happen if it does not work
- discussing the way in which it is proposed the change will be implemented
- allowing employees to raise concerns (whether for the workforce as a whole or individually)
The employee should then go away and think about the situation and then consider whether any changes would be advisable either to the proposal or the way in which it will be implemented. Collective consultation may also be required.
Obtaining Agreement
- Employees should be asked to sign some formal document confirming their agreement to the change
- Employers should, if necessary, consider what incentives can be offered to encourage employees to agree to the change. They should make sure employees know the consequences of failure to agree
- Employers often prefer alternative options such as asking employees merely to acknowledge receipt of a letter notifying them of the change or even not requiring any signature from them at all
Any proposed changes should be both reasonable and proposed in a reasonable manner and subject to the general duties of trust and confidence.
What Happens If You Cannot Obtain Agreement?
Changing an agreement in any event could constitute a repudiatory breach of contract entitling employees to resign and claim constructive dismissal.
Alternatively employees could continue to work making clear their objections to the change and apply to the courts for a declaration that it constitutes a breach and seek damages.
It cannot be assumed that if employees continue to work without protest they have necessarily agreed to the change. The safest route is to give due contractual notice of termination to all employees who have refused to sign up to the change together with an offer of a new contract to start immediately on all the same terms as the old one, save for those being amended, but even this is not risk-free as discussed below.
The Downside
Terminating contracts in order to effect a change will constitute a dismissal. Notwithstanding the offer of new employment employees may be able to bring unfair dismissal claims. In assessing the fairness of the dismissal the tribunal will consider:
- whether there is a sound business reason for the change
- whether alternative options were considered
- the impact of any change on employees and the reasons for adopting it
- the proportion of the workforce that was prepared to accept the change
- any consultation process that was followed and whether the employer tried to obtain voluntary agreement
It should be noted that discrimination claims could also arise if the proposed changes impact unfairly on a particular employee or group of employees by reason of their sex, race or disability.
There might also be clear employment relation consequences in being seen to dismiss an entire workforce even for good reason. Finally, although there is no requirement to consult with employee representatives (rather than with employees individually or as a group) when trying to obtain agreement to the change this may ultimately be necessary. Indeed statute states that the requirement to consult does not arise if an employer simply tries to obtain employee consent to a change without the threat of dismissal. A recent case concerned an employer who proposed to dismiss as redundant more than 20 workers notwithstanding that no workers or jobs were intended to be lost and even though they had accepted new contractual terms. It was proposing to dismiss the employees on a group basis for a reason not relating to the individuals and this was held to trigger the requirements of collective consultation with trade unions and other employee representatives.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
