Variation of employment contracts – the pitfalls

In the current economic climate it may be very tempting for employers to consider varying terms of employment contracts.

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 terms such as 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 their 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 or vice versa.

It is important to note that a contract of employment is binding on both parties. This means that it is unlawful for one party to vary the terms and conditions in the contract without the agreement of the other.

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 (i.e.: agreement between employer and employee or their representatives).

An employer who is proposing to change an employee’s contract of employment should fully consult with that employee (or representative(s)) and explain and discuss any reasons for change.

Variations of contract can be agreed verbally or in writing although it is preferable for any agreed changes to be recorded in writing.

If a variation of contract affects one or more of the terms and conditions required by law to be covered in the employee’s written statement of employment particulars, then the employee must be given written notification of this. The notification must be given as soon as possible, and at any rate no later than one month after the variation is made.

Employers may have to follow collective redundancy consultation procedures, even when no reduction of the workforce is planned, if they intend to impose new terms and conditions on a group of employees by terminating their existing contracts.

If an employee finds a variation of contract unsatisfactory but continues to work under the new terms and conditions without making his or her objections known to the employer, he or she could after a time be deemed to have implicitly accepted it and it would then become incorporated into the contract.

Refusal by Employee to agree to a variation

If an employer imposes changes in contractual terms without the agreement of the employee, there will be a breach of contract.

Where an imposed change involves a significant change to the contract, e.g. a reduction in pay or alteration of working hours, an employer may well be acting in fundamental breach of contract. Where there is a fundamental breach, the employee may treat the breach as bringing the contract to an end and leave the job. In such circumstances and subject to having the necessary qualifying service, the employee will have the opportunity to make a claim of constructive dismissal before an employment tribunal. In coming to a decision the tribunal will take into account whether the employer acted reasonably in all the circumstances of the case.

Alternatively, the employee may continue to work within the varied contract but under protest, making it clear that he or she does not accept the terms and is treating the change as a breach of contract and dismissal from the original contract. In these circumstances the employee will retain the right to seek damages from the employer for a breach of contract and/or a declaration from the courts that the employer must abide by the original terms. Subject to having the necessary qualifying service, the employee may also have the opportunity to make a claim for unfair dismissal before a tribunal.

Whether or not the breach is a fundamental one, the employee may sue for damages for breach of contract in the civil courts; or if the employment has terminated, the claim can be made to an employment tribunal, which can award damages limited to a maximum of £25,000.

What can an Employer do to make contractual changes if agreement on a variation cannot be reached?

If the employer wishes to vary the terms and conditions of employment and the employee, having been consulted, objects to the variation, then the employer may decide to terminate the contract by dismissing the employee. As usual in the event of dismissal, the appropriate statutory or contractual notice (or pay in lieu of notice) would have to be given and any other contractual obligations relating to the termination of employment would have to be fulfilled.

Under the law the termination will be regarded as a dismissal and it will be open to all eligible employees to claim unfair dismissal before an employment tribunal – whether they refuse to accept the new contract and leave, or are dismissed under the old contract and re-engaged.

Deminos are able to provide full advice and support on all contractual issues.

Call us now on 020 7870 1090 to discuss your requirements.

Author chris swindells

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