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Varying a contract of employment

One of the most common issues for employers relates to legal rights and business considerations relating to changing employees terms and conditions. Many employers legitimately have reasons for wanting to change employees terms, but the area is fraught with potential difficulty and risk.

Starting Point

An employment contract is no different to any other form of contract. Once agreed, the general rule is that neither party can alter the terms without the other’s consent. Consequently, an attempt to unilaterally alter a contract would be a breach of contract. Depending upon what type of breach of contract will depend on the options available to the other party.

Fundamental breach or not ?

If you are an employee and your employer changes your contractual terms, you may well face a difficult decision. Do you reluctantly accept the change or not ? If not, should you resign and claim that you have been unfairly constructively dismissed (assuming you have the necessary length of service to qualify) ?

As with all contracts, terms and conditions in employment contracts have different consequences. Some are of vital importance, such as the obvious amount of pay, job location, role and possibly hours. Other aspects may not be so vital, such as when you are entitled to take holidays and so on. The most important clauses are known as fundamental terms. Only breach of a fundamental term entitles an employee to resign and claim constructive unfair dismissal.

What about contractual clauses that contain discretion ?

Bonuses are a classic area of dispute where an employee may argue that the employer has sought to change the contract. Employers often believe that having a clear clause in a contract of employment stating that a bonus is not a contractual entitlement but discretionary means that they can literally adopt that approach. It is understandable that employers will think this but with employment contracts the matter is not that simple.

This is because with employment contracts, the Tribunal or court will often imply terms into the contract based on past conduct of the parties and regardless of what’s actually stipulated.

For example, if an employee has received a bonus for 5 years in a row and the employer then simply advises that no bonus will be paid in this year, without clear justification, notwithstanding the contract clause might appear to support total discretion for the employer, in practice, the employer may be considered to have sought to unilaterally vary the contract.

Other implied changes by conduct

Employers are well advised also to be wary of the employment contract being altered by conduct. Take the example of an employee who is allowed to work from home every so often. Gradually, this becomes more and more common. In that situation, over a period of time the employee may be in a position to argue that he or she now has the contractual right to partly work at home. The same sort of issue can apply to an informal change of job role.

In the same way, if as employee, your employer alters your employment terms and you accept those changes, especially without reserving your position or making it clear it is under protest, over a period of time, you may be considered to have accepted the change and to have potentially waived the employer’s technical breach of contract. If your employer alters your contract, you should consider your options and not simply do nothing.

Changing employment contract based on necessity

If an employer is in financial difficulty, one option is to seek to alter employee’s contract by paying them less money, perhaps as an alternative to redundancy. In such a genuine predicament, a Tribunal or court may well be sympathetic to the employer who tries to retain staff, the situation must still be handled very carefully and cannot be imposed on employees. Consultation is key and if redundancy may be the alternative if the employee or sufficient employees are not prepared to work on less favourable terms, employees should be put on notice and proper process followed.

Specific flexibility clauses

Employers will often include clauses in contracts seeking to reserve the specific right to alter certain aspects of employment without further consent. Examples of these types of clauses include mobility clauses and hours of work. Employers should be aware that such clauses may not be effective and will be given a restrictive interpretation by courts and tribunals and the implied terms of an employment contract may curtail the operation of an express flexibility clause.

Employment contract vs employment policy

Employment policies are often a good way for employers to obtain flexibility, outside of the contract relationship. Policies such as holidays, health & safety, data protection or social media and internet use may need to be updated regularly and may be stated specifically not to be part of the contract. However, employers should also be aware that, by conduct or for other reasons, aspects of policies may become contractual. Advice should be sought in this tricky area.

Don’t forget discrimination

As employer you may consider, if you have employees that do not qualify for unfair dismissal and are on short notice periods, that it is worth taking the risk of imposing contract changes. However, you should also be wary of discrimination of any kind. A common pitfall is where women return form maternity leave and an employer wants to later her terms of employment. Not only might this constitute automatic unfair dismissal but could also be discriminatory.

If agreed get it in writing

For all the above reasons, where an employer and employee agree a change of anything important in the contract of employment, it is highly advisable to make it clear what the revised terms are. In writing, and preferably drawn up by an experienced lawyer.

Ben Jones - Partner & head of employment law

Ben Jones – Partner & head of employment law

Varying employment terms is a minefield. Whether as employer or employee, if you have any concerns about proposed or actual changes, get in touch with me for practical and cost effective advice.

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