Contract Variation/Changing Terms and Conditions of Employment

It is almost inevitable that at some point during an employee’s employment there will be a need to make a change, or changes, to their contract of employment. This could be for a simple change such as an annual pay increase or a promotion or something more substantial such as a change to the company sick pay structure.

For some changes, such as a pay rise, an employee is unlikely to have any issue and will consent to the change, however, for other changes, particularly where an employee could be losing benefits, agreement will be far less likely.

It is essential as an employer that changes to terms and conditions of employment are made in a way which makes them binding and in a way that minimises risks to the business as much as possible.

There are two circumstances where an employer may make a change to a term of an employee’s contract:

1. Where there is agreement or mutual consent between both parties to make the change(s); or
2. Where the contract of employment contains a clause allowing for the proposed change.

This article will focus on cases where contracts do not allow for the change.

Making a Change – Steps to Take

• Identify the Contractual Provision to be Changed

As a starting point, it is helpful to consider whether the change you want to make will actually constitute a change to an employee’s contract of employment. For example, there are a number of policies and procedures that are non-contractual and which, if changed, do not amount to a change of an employee’s contract of employment.

The easiest to identify are express terms of the contract. In other words, these are clauses which are written into the contract and have been expressly agreed between the employee and the company.

However, you should also be aware of the possibility of implied terms of a contract. These are clauses that are not written into the contract but have become an implied term, for example, through custom and practice. There are various reasons why this could have happened, for example, paying employees full pay where they have a single day of absence despite having a clause in their contracts stating Statutory Sick Pay only, or where you have consistently paid employees overtime pay despite their contracts stating that there is no overtime pay. The most common occurs with zero hours’ contracts, where an employer gives a zero hours’ employee regular and consistent hours week on week. If a zero hours’ employee works the same days and hours for a long period of time, then it will become implied that they are entitled to those hours and days of work each week under their contract. 

• Making a Binding Change of Terms

There are three main ways that an employer can go about making a binding change to a contractual term where the contract doesn’t allow the change:

1. Reach express agreement with an employee to the new terms that you would like in place.
2. Make a unilateral change to the contract (i.e., without seeking any agreement in advance) and, if the employee continues to work under the new terms, rely on their conduct to establish agreement (although this option is fraught with risk); or
3. Terminate the current contract of employment and offer immediate re-employment on the new terms that you would like in place.

Reaching an express agreement is generally straightforward, particularly where the change benefits the employee, or at least doesn’t negatively affect them. It is preferable to seek the employee’s agreement in writing to any change as it is far less likely to be successfully challenged later down the line.

Employers will find it easiest to begin a consultation process with employees with a view to seeking express agreement as it creates a forum which allows the changes to be explained properly and for the employees to ask questions and discuss the proposals further before they commit.

It is essential to note that where a change is made, it will not be binding unless the employee receives a benefit in return. In most cases, their continuity of employment will be enough, however, if the change is something that does not benefit the employee immediately, this needs to be considered more carefully.

Making a unilateral change is an option for employers, but it is one that is not recommended. This involves simply making a change to a contract without any agreement from an employee. This can seem an effective solution for employers but once the risks are considered, it is rare that the benefits of this approach outweigh those negatives.

If a unilateral change is imposed, some of the consequences can include:

• An employee working under protest and making a claim for breach of contract whilst they remain employed.
• If the employee deems the breach of their contract to have been a breach of a fundamental term, they may resign and make a claim for constructive unfair dismissal.
• The employee could refuse to work and if they are dismissed as a result, make a claim for unfair dismissal; or
• If the changes are substantial and could be deemed as an introduction of a new employment contract, the employee can claim to have been dismissed unfairly from their old contract.

The final approach is to dismiss and offer re-engagement on the new terms. This is the preferable approach where the changes are unlikely to be expressly agreed by the affected employees.

In order to ensure that any dismissal is fair, it is important that a full consultation procedure is carried out before any dismissal takes effect.

It is also essential to note that where the proposals could lead to the dismissal and re-engagement of 20 or more employees, an employer is under an absolute obligation to consult with their employees collectively. There are a number of requirements in these circumstances which employers must meet.

It will also be important for an employer to evidence that there is a valid business justification for the changes that they are trying to implement. Although an employee’s refusal to accept the changes will usually amount to some other substantial reason and provide a potentially fair reason for a dismissal, this will only apply where the employer can show that there was a need to make the changes that were proposed. For example, if an employer is seeking to reduce wages, they will need to be prepared to disclose financial records which show that there is an absolute need to do so, or where an employee is seeking to reduce company sick pay, they will need to be prepared to disclose financial evidence which shows that the current position is causing financial difficulties.

On a final note, whenever there is a change made to an employee’s terms and conditions of employment, that change must be confirmed in writing, whether in the form of a new contract of employment or a letter outlining the changes.

As you will note from the information set out above, whilst many will think that making changes to contracts of employment is straightforward, it can be anything but, and there are a number of pitfalls which can lead to claims with significant potential value being made against your company. It is often very difficult to get this right, but the importance of doing so is paramount.

With the above in mind, we would highly recommend having trusted advisers in your corner to help you. Wilford Smith’s business focussed services specialise in Employment Law, Commercial Law, Company Law, Commercial Conveyancing and Regulatory and Criminal Investigations.

We can be your trusted adviser in all areas.