A contract of employment is an agreement between an employer and an employee or worker that is legally binding.
The contract may be negotiated orally or in writing, but it is advisable to have a written document in place, signed by both parties, stating the terms of the agreement, to reduce the risk of disputes and misunderstandings over rights and responsibilities.
In reality, it is likely that the contractual terms will change over the course of the employment relationship. One example could be if the employee receives a pay rise or is promoted.
If, as an employer, you wish to amend the terms of an employment contract, you have to follow a lawful procedure to avoid legal complaints.
Any changes (known as ‘variations’) to the contract must be approved by both the employer and the employee or in some cases, the trade union and other employee representatives.
Where there is a clear benefit for the employee, these changes are usually accepted by the employee.
The process of changing contract terms may not be so simple when changes are needed that may not be as favourable to the employee and if they are not permitted by the employees’ existing contract. For example, changes could include reducing working hours or demotion.
In this guide, we look at the key considerations for employers when looking to vary contract terms, with best practice advice on how to deal with employees who object or are reluctant to agree to changes.
Are contract changes necessary?
Before proposing an employment contract change, you should be certain that this is a necessary course of action. Changing contract terms without employee support can be potentially damaging to working relations, it can increase stress levels or sickness absence, and give grounds for legal claims such as unlawful discrimination, breach of contract and constructive dismissal.
What is the problem you are attempting to resolve by changing the contract terms, and what are the alternatives? This might help you clarify your goals and the various paths you can take to attain them.
For instance, if you are attempting to cut business costs, you may first evaluate how you might enhance working methods or create savings elsewhere before considering contract changes.
Common reasons for changing contract terms include:
- To ensure contracts are up-to-date with new laws or regulations
- To better reflect someone’s job role, if it has changed
- To introduce new terms and conditions, such as contractual redundancy pay or enhanced maternity, paternity, parental, or adoption leave and pay
- To reflect changes to an organisation, such as if it’s considering moving to a new location or changing who people report to
- To help an organisation better adapt to changing customer needs
Changing contract terms
The extent of the preparation required will, of course, depend on the extent of the proposed changes and the number of employees/other individuals potentially affected by those changes. In preparation, it is advisable to carry out an assessment of:
- the nature of the workforce, ie their status and length of service and, hence, the extent of the risk of claims for unfair dismissal
- the contracts in place for the individuals potentially affected by the changes:
- identify contractual and non-contractual terms
- beware contractual terms in handbooks/other documents etc
- the proposed changes:
- do they affect contractual terms at all?
- if they do not, is any change to contracts actually required?
- if the changes do affect contractual terms, do the relevant contracts have an adequate flexibility clause covering the proposed change that could be invoked?
The results of the assessment outlined above will dictate the extent of the process that is required and the steps outlined below may need modification accordingly.
Will the proposed changes affect the contract?
The employer should first decide if its plans involve amending the contract itself. This involves identifying the existing terms of the contract, which may be:
- Express: these are terms that have been explicitly agreed between the parties (either orally or in writing).
- Implied: terms may be implied for a number of reasons, for example, through custom and practice.
- Incorporated: terms may be incorporated into the contract by statute or as a result of a collective agreement.
Some terms will not be part of the contract. These include, for example, benefits that are stated to be non-contractual and “policies” which merely provide guidance on how the contract will be carried out. However, sometimes a policy can become contractual even if it is not stated to be, for example, through custom and practice. Furthermore, an employer should avoid altering non-contractual policies in a manner that is likely to destroy trust and confidence, since this will breach an implied term, or in a manner that is discriminatory.
Is there a contractual right to vary the term?
If the proposed change will affect the existing term of the contract, the employer will not need to amend the contract if:
- The existing terms are sufficiently broad to accommodate the employer’s proposals.
- There is a specific right for the employer to vary the contract in this way.
- The contract gives the employer a general power to vary its terms.
- Any ambiguity in the terms of the contract will be construed against the employer.
- Any specific flexibility clauses will be given a restrictive interpretation by the Courts and may be limited by an implied term (for example, an obligation to exercise the clause reasonably).
- General flexibility clauses can probably only be used to make reasonable or minor administrative amendments that are not detrimental to the employee.
Implementing a binding change in terms
If the employer’s proposals involve altering the existing contract and there is no contractual right to make such a change, the employer could:
- Get express agreement to the new terms (either from the employee or through a binding collective agreement).
- Unilaterally impose the change and use the employee’s conduct to establish implied agreement to the new terms.
- Terminate the existing contract and offer continued employment on the new terms.
The employee may agree to the employer’s proposals orally or in writing (although an oral agreement is clearly more vulnerable to challenge at a later date).
For the contractual amendment to be binding, the employee must receive some form of benefit in return. In many cases, the employee’s continued employment will be sufficient consideration, but there may be problems when the change does not have an immediate effect (for example, when the employee’s rights on termination are altered).
Collectively agreed variations may bind the employee if the union (or other collective body) acted as the employee’s agent during the negotiations or the collective agreement containing the change is incorporated (either expressly or impliedly) into the employee’s contract.
Imposing the change and relying on the employee’s implied agreement
This strategy is more likely to be effective if there is an immediate practical effect on the employee (for example, a pay cut) and they continue to work without objecting. However, employers should not assume that silence is sufficient to indicate implied agreement, especially if there is no immediate impact on the employee.
If the employer imposes the change it will be a breach of contract. The employee can:
- Comply with the new terms but work “under protest” and claim for breach of contract or (if their wages have been reduced) unlawful deductions from wages. This is sometimes known as “standing and suing”.
- If the change is sufficiently fundamental, resign and bring a claim for constructive dismissal.
- If possible (for example, where there is a change in duties or hours), refuse to work under the new terms.
Dismissing and offering re-engagement on new terms
This approach avoids the risks involved in unilaterally imposing the change on the employee (see above). However, as a result, the employee may be able to claim:
- Wrongful dismissal, unless the employer gives the appropriate period of notice (or makes a payment in lieu of notice).
- Unfair dismissal, unless the employer can establish a potentially fair reason for dismissal and show that it acted reasonably in deciding to dismiss the employee for failure to agree to the change.
A refusal to agree to a change in contracts will normally amount to some other substantial reason for dismissal under section 98 of the Employment Rights Act 1996 (SOSR), provided there is a sound business reason for the change. Acting reasonably includes following a fair procedure and so the employer must give the employee sufficient information about the reasons for their possible dismissal, and the opportunity to state their case at a hearing. A tribunal will also look at other factors such as whether the employer has consulted employees over the changes with a view to agreement, the reasons why the employee has rejected the change, and whether the majority of employees have accepted.
If the employer is using this approach to make changes to several employees’ contracts, the dismissals will be treated as redundancies for certain purposes. If it is proposing to terminate the existing contracts of 20 or more employees, it must notify the Secretary of State and comply with the collective consultation obligations under the Trade Union and Labour Relations (Consolidation) Act 1992 (see information on consultation obligations). Failure to comply with the collective consultation obligations may result in the employer being ordered to pay up to 90 days’ actual pay to each affected employee. Failure to notify the Secretary of State is a criminal offence.
DavidsonMorris’ employment lawyers work with employers on all aspects of workforce management, including recruitment and onboarding processes as well as reviewing and drafting documentation relating to employment offers and terms. Working closely with our team of human resource specialists, we offer a holistic solution to support with legal risk management while protecting the best interests of the organisation in finding and onboarding best talent. For advice on a specific issue, speak to our experts today.
Changing employment contract terms FAQs
Can an employer change the terms of a contract?
Employers usually require the agreement of an employee to change contract terms lawfully.
What notice is required to change a contract of employment?
If the change affects the main terms and conditions of the employment contract, the employer has to give written notification within one month of the variation.
Can an employer unilaterally change terms of employment?
Making unilateral changes to the employment contract is likely to constitute a breach of contract, however, a distinction should be made as to whether the variation constitutes a minor or a fundemental breach.
Last updated: 16 April 2022