Varying Employees' Contracts of Employment

If an employer is seeking to make changes to employees' contracts of employment, it is important to remember that where this will necessitate adverse changes to their existing terms of employment, the contracts can only be varied with the agreement of both parties, either by agreeing the changes with each individual affected or, in some cases, through a collective agreement.

If an employer makes a unilateral change to an employee’s conditions of employment without the employee’s agreement it is generally a breach of contract, unless there is clear wording in the contract allowing it. In serious cases, the employee would have the right to resign and claim constructive dismissal. If you are proposing changes to employees’ contracts of employment, even where these do contain a flexibility clause, it is important to follow fair procedures, which includes consulting with employees well in advance of the planned changes in order to try to reach agreement.

Employers should explain and discuss the reasons for the changes before inviting the employees to give their views on the draft revised contract. Failure to consult will count against you if an employee rejects the new contract terms and the matter ends up in court. However, if there is a sound business reason for the change and you have carried out the necessary consultation and sought out alternative solutions, it will be more difficult for employees to succeed in a claim against you.

When times are tough and redundancies are likely unless alternative ways of cutting costs are found, a more successful outcome is likely to be achieved when employees fully understand the situation because they have been involved in the decision-making process.

Although variations to a contract can be agreed verbally, it is advisable to record any agreed changes in writing.

If the employees agree to sign the revised contract, all well and good. If the variation concerns particulars that must be included in the written statement of employment particulars, don’t forget to give the employees written notification of the changes within a month of their taking effect.

If, after meeting with the employees to discuss their concerns, agreement cannot be reached, the employer can terminate the original contracts, taking care to give the required notice, and offer the employees new contracts that include the revised terms. Where the employees accept the new contract, continuity of employment is preserved. The termination does not constitute a breach of contract but is technically a dismissal, so a disgruntled employee can bring a claim of unfair dismissal.

Where more than 20 employees at one establishment are dismissed but immediately re-employed on revised terms, the employer has a statutory duty under the Trade Union and Labour Relations (Consolidation) Act 1992 to consult with them in advance. Failing to do so could result in the employer having to pay a protective award to each employee.

Note that special rules apply if changes to employees’ terms of employment are as a result of the sale or transfer of a business or a part of one to which the Transfer of Undertakings (Protection of Employment) Regulations 2006 apply.