We live in an age of constant change where disruption, innovation and evolution are norms. In the business sector, it is good practice for employers to regularly review employment agreements, job descriptions, key-performance-indicators, wages and salaries, and the existence of the job itself.
However, the principle of sanctity of contract is one of the cornerstones of the law, and therefore it is not surprising that the courts have made it clear that one party cannot unilaterally change or override the express terms of an employment agreement. It is fundamental that any variation to the employment agreement requires the genuine consent of the parties, whether the variation take the form of an alteration to existing terms or conditions, or the imposition of a new contractual term.
The principle that one party cannot unilaterally alter an employment agreement without the consent of the other party is well established. However, the Court of Appeal made the doctrine of management prerogative popular following its decision in Hale1. It was used in some cases as a basis for arguing that breaches of contract based on commercial necessity may be justified.
In more recent times the Employment Court has said that an employer does not have a licence to make wholesale changes to an employee's contract on the basis of management prerogative. However, the courts certainly recognise an employer's right to manage its business as it sees fit. The key issue is in assessing how to reconcile these two principles and determine whether it may be legitimate to rely on the right to manage and make changes to an employee's terms and conditions of employment.
While an employer is not authorised to vary an employee's employment agreement by express or implied terms there is the option of obtaining the employee's consent. If both parties agree to the change then it can be a 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 risk of unilaterally changing an agreement would constitute a repudiatory breach of contract entitling an employee to claim a personal grievance. Alternatively, the employee could continue to work making it clear their objections to the change and apply to the Employment Relations Authority for a determination (or compliance order) that constitutes a breach and seek damages.
If your business is considering changes then the starting point is to look at the employment agreement and any review or change clauses. An employer is, of course, not precluded from approaching an employee to renegotiate their terms and conditions. This will involve a consultation process. The elements of the process must at a minimum include an explanation for the proposed change; the reasons behind it; what will happen if the employee does not accept the proposal; discussion about the implementation of the proposal; and the opportunity for the employee to raise concerns and any alternatives to the proposal. Any changes to employment agreements should be recorded in writing and signed by the parties.
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Footnote
1GN Hale & Sons Ltd v Wellington Caretakers IUOW [1991] 1 NZLR 151.
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.
