An employee’s terms of employment are likely to change during the course of their employment, for example due to a pay rise or promotion. These types of changes are usually agreed by the employer and employee without any difficulty. But what if the employer wishes to make changes to the contract that the employee is less keen to accept? Read on for more information.
Why would an employer want to vary a contract?
This is quite often brought about by a change in economic circumstances and a need to reorganise the business or to harmonise terms of employment across the business.
A contract can be varied in a number of ways and these are considered in more detail below. Whatever method is used, the employer should consult with affected employees or their representatives and explain the reasons for the proposed change. This is so even if there is a specific clause in the contract purporting to allow the employer to unilaterally vary terms and conditions.
Variation by agreement
The best way of making changes is with the employee’s consent. Although variations can be agreed orally it is preferable for any changes to be recorded in writing (and the employer must give written notice for certain changes). This will help to reduce any dispute later as to what was agreed.
It is a legal requirement that any variation to the contract must be supported by consideration (i.e. monetary or other benefit). If the proposed variation is to the employee’s advantage then that will be the consideration (e.g. a bonus or extra holiday). Consideration may be harder to establish when the proposed variation is to the employee’s disadvantage.
An employee who continues to work without objecting to the variation may be deemed to have consented to that variation (known as implied agreement).
Variations which are negotiated between the employer and a trade union may be effective in amending individual contracts if the union has acted as the employee’s agent or where the collective agreement reflecting the variation has been incorporated into the employee’s contract. This may even apply to employees who are not members of the relevant trade union.
Variation permitted by the contract
The terms of the employee’s contract may authorise the variation. There may be a specific flexibility clause giving an express right for the employer to make the proposed change (such as a mobility clause). Or there may be a general flexibility clause giving the employer a general right to vary the terms of the contract. However a non-specific, widely-drafted flexibility clause may be of limited use and effective only to bring about minor changes.
Even if the contract appears to allow the employer to make the proposed change the employer must still act reasonably.
Imposing change unilaterally
If the proposed change is not authorised by the contract itself and/or employees refuse to agree to the variation the employer may try to impose the variation unilaterally. An employer who does this will be in breach of contract. The employee can respond as follows:
• Work under the new terms under protest;
• Refuse to work under the new terms if possible.
Working under protest
An employee may choose to work under the new terms but make it clear that they are not accepting the change. The employee may bring a claim for breach of contract or unlawful deductions from wages (if the breach of contract involves a shortfall in wages). Only direct financial loss arising from the breach can be recovered, so a breach of contract claim may be difficult unless the breach is connected with the employee’s pay or benefits.
Where the change imposed is substantial the employer may be deemed to have dismissed the employee and the employee may also bring a claim for unfair dismissal (depending on their length of service)
If the breach of contract is serious enough (i.e. fundamental) an employee may resign and bring a claim for constructive dismissal rather than continue to work under the new terms and bring a claim for breach of contract or unlawful deduction from wages. The employee should not delay too long before resigning in response to the breach.
Refusing to work under the new terms
It will only be possible for employees to stay in employment and refuse to work under the new term where the term affects their day to day working arrangements (such as job duties and working hours) as opposed to matters which are firmly in the employer’s control, such as pay.
If an employee refuses to work under the new terms but does not resign the employer is left with a predicament over what to do with the employee. The employer may be forced to dismiss the employee which could lead to an unfair dismissal claim (see below)
Dismissal and re-engagement on new terms
In the absence of contractual flexibility or the employee’s express agreement to the variation, the employer’s best option is probably to dismiss the employee and then offer to re-engage them on the new terms.
If the employer has given proper contractual notice of the dismissal (or made a payment in lieu of notice) then the effected employees will not have a wrongful dismissal claim.
Even where the employer offers continuing employment on new terms, termination of the existing contract constitutes a dismissal in law and employees will be able to bring unfair dismissal claims, even if they choose to accept the offer of new employment.
An employer can however defend an unfair dismissal claim if it can establish a potentially fair reason for dismissal and show that it acted reasonably in dismissing the employee for failing to agree to the variation. The employer will need to show that it had a sound business reason for dismissing an employee who refused to accept the change and that the dismissal was overall and procedurally fair.
If an employee has been offered a new contract on reasonable terms and without significant changes they may not be awarded much, if anything, by way of the compensatory award even if their unfair dismissal claim succeeds.
If the organisation or service that an employee works for changes owner, the employee may be protected under the Transfer of Undertakings (Protection of Employment Regulations (TUPE). The TUPE regulations make it difficult to change contractual terms when the change is connected with the transfer of an undertaking. The only variations that can be agreed are those done for a reason unconnected with the transfer or for a reason connected with the transfer that is an economic, technical or organisation reason entailing changes in the workforce or the change is otherwise permitted under the terms of the contract.
How can LincsLaw help?
If you are an employer wishing to make changes to an employee’s contract or you are an employee whose terms have been changed or are proposed to be changed and you would like some advice on your individual situation, we would be pleased to help.
Please contact us on 01522 440512 or 01522 440515 (direct dial) or visit our website at www.lincslaw.co.uk.
Specialist Employment Solicitor
Lincs Law Employment Solicitors