Changing employment terms
A contract of employment, like any other contract, cannot lawfully be altered without the consent of both parties. Normally, therefore, an employer who wants to make a change in an employee’s contract of employment must obtain that employee’s consent.
One way to achieve this is to include a ‘variation clause’ in the original contract. This permits one party – usually the employer – to change the contract terms. In principle, this is lawful because consent to the change has been given in advance.
The potential unfairness to employees leads the courts to view unilateral variation clauses with suspicion. Nevertheless, provided it is properly worded, even a very wide unilateral variation clause can be valid. For example, in a 2010 case, the Employment Appeal Tribunal (EAT) said that employers could rely on a term in the contract or, possibly, a handbook to reserve the right to vary employees’ contracts unilaterally as long as the term is clear and employers do not exercise the power in such an unreasonable way that they breach the term of mutual trust and confidence (e.g., by introducing the change without notice or warning.)
In that case, Asda wanted to move staff onto a new pay structure and imposed the new regime on the employees by relying on a term in the staff handbook that reserved Asda’s right to “review, revise, amend or replace” anything in the handbook “to reflect the changing needs of the business”. The EAT upheld Asda’s right to change the employees’ pay structure.
A key factor in that case was that the "variation clause" was clear and unambiguous.
However, in the latest case, the employer’s reliance on a variation clause failed because it was poorly worded.
The claimants in that case brought tribunal claims for breach of contract relating to a reduction in their paid sick leave entitlement. The employer argued that a term in the claimants’ letter of appointment enabled it to vary the contracts without obtaining the claimants’ agreement. The term stated that the claimants’ particulars of conditions of service were ‘subject to amendment; any significant changes affecting staff in general will be notified by management circulars ... while changes affecting your particular terms and conditions will be notified separately to you’.
The tribunal agreed with the employer that the term in the claimants’ letters of appointment enabled it to vary the contract of employment without obtaining the employees’ agreement.
However, the EAT allowed the claimants’ appeal, saying that the term was unclear and probably ambiguous and the employer could not use it to change the employees’ contracts without consent. The employer was not allowed to rely on the Asda case because in the Asda case, unlike this one, the clause was clear and unambiguous and amounted to a clear reservation of the right of unilateral variation.
A term permitting employers to impose changes in employment terms is valid if it is clear and unequivocal. Very careful drafting is required
Even then, it may still be necessary to meet the additional conditions present in the Asda case, namely, that the employer can show a business need for the proposed change and that it did not exercise the power to make changes unilaterally in a manner that was arbitrary or unreasonable.
Employers who want to reserve the right to change terms and conditions without first obtaining employees’ consent should consider:
1. including a clause in the contract that amounts to a clear and unambiguous reservation of the employer’s right to vary the employment terms unilaterally;
2. proving a business need for the proposed change; and
3. exercising the power to make the change in terms in a reasonable way, preferably after consultation and on notice.
If you would like advice about how to apply the issues in this note to your situation, please contact Tony Brown on 01225 740097 or by e mail to firstname.lastname@example.org
Warning - this bulletin is provided for information only and is not a substitute for legal advice. You should obtain specific, personal advice about your circumstances and not rely on the information or comments in this bulletin.