Changing or varying a contract
At some point, either party bound by a contract of employment may want to change it.
For example:
- an employer may want to reorganise the business due to economic circumstances. This might mean changing working hours or pay
- an employee may seek improvements in their pay or holidays, or want to change the hours they work due to domestic responsibilities.
Why would employers or employees want to vary a contract?
- An employer may wish to vary the terms of the contract because of changed economic circumstances or due to a reorganisation of the business. Possible areas of change could include pay rates, hours or days worked, duties, supervisory relationships or place of work.
- An employee may seek to vary the contract to bring about improvements in pay or working conditions, for instance by requesting additional holidays, or to change the conditions so that they suit him or her better, eg: by requesting a change from full-time to part-time working because of domestic responsibilities.
How can contracts be varied?
- An existing contract of employment can be varied only with the agreement of both parties. Changes may be agreed on an individual basis or through a collective agreement (ie: agreement between employer and employee or their representatives (trade unions or workforce representatives)).
- An employer who is proposing to change an employee’s contract of employment should fully consult with that employee or his or her representative(s) and explain and discuss the reasons for the change.
- Employees are far more likely to accept changes if they can understand the reasons behind them and have an opportunity to express their views. Involving employees makes good business sense, as it drives up levels of employee engagement and motivation.
- Variations to the contract can be agreed verbally or in writing. It is preferable for any agreed changes to be recorded in writing.
- Where a variation to the contract has been agreed and the changes concern particulars which must be included in the written statement of terms and conditions, the employer should give written notification of the change to the employee, within a month of the change taking effect.
In what circumstances can an existing contract authorize changes in the employee’s working conditions?
- A contract may contain express terms which allow an employer to make changes to employees’ terms and conditions. The flexibility clauses may be quite specific or they may include a general power to allow the employer to change the contract terms. WARNING As case law suggests that tribunals and the courts often place a fairly narrow interpretation on flexibility clauses an employer should seek legal advice if they intend to rely upon the flexibility clause in their employees’ contracts to vary the terms and conditions.
**WARNING As case law suggests that tribunals and the courts often place a fairly narrow interpretation on flexibility clauses an employer should seek legal advice if they intend to rely upon the flexibility clause in their employees’ contracts to vary the terms and conditions.
How can an individual contract be varied by a collective agreement?
- A contract of employment is in law an agreement between an employer and an individual employee. Any variations to the contract need that individual’s agreement. However, an employer and employee can agree, either expressly through a clause or reference in the employee’s contract, or through an implied term, that relevant changes in terms and conditions can be negotiated by a trade union(s) on the employee’s behalf. This may be the case whether or not the employee is a member of the recognised trade union(s).
Varying a contract: employers’ questions
What’s the first thing I should do?
Consult with your employees (or their representatives) about any proposed changes to their contract with the aim of seeking the employee’s agreement. It is best practice for you to seek written consent to the changes from the employee (an e-mail response from your employee would normally be acceptable). You must also provide a written statement detailing the changes to their written statement of terms and conditions within one month of the change taking effect. It is best to renegotiate an existing contract through consultation and discussion with your employees. The aim of this is to reach a compromise.
Is it worth offering incentives?
It maybe. Some employers offer incentives to encourage their employees to agree to the change(s). You might offer to “buy out” a term in the contract to allow them to introduce a different contractual term. Incentives do not have to be financially costly to a company, for example, a company wishing to alter shift patterns may be able to offer extra paid or unpaid leave in exchange.
Can I impose a contract unilaterally?
If you impose a new contract unilaterally you will be in breach of contract and your employees may well:
- make legal claims against the company for constructive dismissal if the breach is fundamental and significant
- claim damages for breach of contract at a civil court
- claim at an employment tribunal for unlawful deduction from wages if the change affects their pay.
What if I can’t reach agreement with my employees?
If you cannot reach agreement with your employees you can serve notice to terminate the existing contract and offer the employee re-engagement on the new terms. This should be considered only after full and thorough consultation with employees and their representatives and treated as a last resort. By doing this you will be dismissing the employee and it is important that you follow a fair dismissal process and offer the employee the right of appeal against their dismissal. Your employee may make a claim to an Employment Tribunal for unfair dismissal. It would be for the Employment Tribunal to decide whether or not the dismissal was fair or unfair. Proper notice of the termination of the contract will be as specified (or implied) in the employee’s contract, or the minimum statutory notice period, whichever is the longer. Whilst you would not be breaching your employees’ contract by doing this your employees could claim unfair dismissal if they have the qualifying length of service to do that.
Varying a contract: employees’ questions
What if I just agree to the changes?
In this situation you would start to work under the new terms and conditions agreed between yourself and your employer. Your employer would usually put the changes in writing to you and may ask you to sign a document to confirm that you have agreed to the change.
NOTE: if you do not agree to the change but do not inform your employer AND you work under the new terms and conditions, this could be perceived that you have accepted the changes. If at a later date you decided to make a claim to an Employment Tribunal, the Tribunal will take into account what you have done to resolve the matter with your employer.
Can I complain to my employer?
Yes. If you are unhappy with the changes your first step would be to discuss this informally with your employer. If this does not resolve the matter then you may wish to raise a formal grievance, using the company grievance procedures. The benefit of doing this is that you may be able to resolve the matter quickly and may help you to re-negotiate the changes.
What if I leave?
If you leave you could claim constructive dismissal at an employment tribunal if you consider that the changes to your contract are significant and fundamental and providing you have the qualifying length of service to do this.
Can I stay and work under protest?
If you work under protest you can either:
- Work under the new terms and make it clear to your employer that you do not agree to the change AND take legal action at a civil court to sue your employer for breach of contract. The court will consider whether the company are in breach of contract and may award you damages that you have suffered as a result of the breach of contract. This is costly and you should take legal advice, OR
- Bring a claim for unlawful deduction from wages if the change results in a reduction in your wages. Again you must inform your employer that you do not agree to the changes or that you are agreeing under protest.
Can I claim unfair dismissal if I stay at work?
In some exceptional circumstances where your employer has unilaterally imposed significant and fundamental changes to your contract upon you it may be possible to claim at an employment tribunal that you have been expressly dismissed from your existing contract even though you continue to work under the new contract. In this situation you must make it clear to your employer that you do not agree to the changes and seek to resolve the situation first with your employer. This is a very complex situation and it is important that you seek legal advice before making a claim to an employment tribunal before taking action at the tribunal.