Variation Clauses in Employment Contracts

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Variation clauses in contracts of employment play an important role in allowing flexibility in workforce management, but they are not without risk.

In this guide for employers, we explain what the law says about varying employees’ contract terms, and how employers should approach making changes to employment terms and conditions with minimal legal risk.

 

Making changes to employment contracts

During the employment lifecycle, it is not uncommon for some of the terms and conditions under which an employee is required to work to change. These could include, for example, changes to the employee’s working hours or pattern, changes to their job role or rate of pay, or even changes to their place of work. However, as a matter of law, both the employer and employee would usually need to be in agreement for those changes to take legal effect.

Without an effective variation clause within the employee’s contract of employment, this means that to be able to effectively make changes, the employer would need to consult or negotiate with employees, or with the representatives of any recognised trade union or staff association. During this consultation process, the employer must explain the reasons for the proposed changes and listen to alternative ideas from employees or their representatives.

If the changes can be agreed, either directly with staff or representatives on their behalf, the employer would need to update the terms of their employees’ written statement of employment conditions. They would also need to write to each employee affected by the changes within a month, notifying them in writing as to what has been agreed, including any changes made to collective agreements with trade unions or staff associations.

If, however, an employer tries to change an employee’s contract without their agreement, this can give rise to serious problems. In these circumstances, an employee may have the right to refuse to work under the new conditions or to say that they are working under protest and are treating the change(s) as a breach of contract. They will also potentially have the right to resign and claim constructive dismissal before an employment tribunal.

As a last resort, an employer may bring a contract to an end, and re-employ someone on new terms and conditions although, to do so, the employer must first follow a lawful redundancy procedure. Additionally, if the employer does dismiss and re-employ someone, even if they follow an appropriate redundancy procedure, the employee may again be able to take a case to a tribunal, claiming breach of contract and unfair dismissal.

 

What is a variation clause?

Also commonly referred to as flexibility clauses, variation clauses are express terms written into employment contracts, giving employers the contractual right to change certain terms and conditions. A variation clause is the employer reserving the right to make changes in accordance with the terms of that clause, without further agreement from the employee.

Some amendments to terms and conditions at work are commonplace, such as incremental salary increases, where any contractual variations are likely to be mutually agreeable between the employer and employee, without the need for any variation clause to facilitate these changes. In contrast, there are various changes which may need to be made that are not necessarily something the employee would readily agree to, such as a change in working hours or working pattern, or a change to their place of work, where the employer would need to rely on the contractual right to vary the employment contract in this respect.

Variation clauses can be used for all sorts of different reasons when running a business and managing staff. They often appear in the form of mobility clauses, where an employee may be required to relocate to a different branch or different location. This could be where, for example, a business is growing and the operational needs of the business have expanded or, conversely, where a business is financially struggling and so needs to be restructured. Variation clauses are also often used to reduce staff hours or pay, or to impose a temporary period of lay-offs if there is a downturn in work as a means of avoiding redundancies.

 

When are variation clauses used?

The mere fact that a variation clause has been incorporated into an employee’s contract of employment does not necessarily mean that this can be used indiscriminately. There must be a sound business reason when making use of a variation clause, such as fulfilling the operational needs of the business or when making necessary economic cutbacks.

The way in which the clause is used by the employer must also be reasonable. This is because, even where an express provision exists within an employment contract to be able to make a particular change, variation clauses do not allow an employer to implement unreasonable changes. For example, in the context of a contractual mobility clause, permitting the employer to change an employee’s place of work, an employer could not use this type of clause to insist on an employee moving to another part of the country to work on very short notice. Much will depend on the nature and scope of the clause in question, but even with a widely-drafted variation clause, this must be exercised reasonably by the employer, having regard to the practicalities involved of any significant changes.

Still, provided the employer’s decision to exercise the right to make certain amendments is reasonable in all the circumstances, a variation clause will give the employer the ability to lawfully change the way in which an employee works, even if the employee objects.

 

How much notice should be given when using variation clauses?

When it comes to how much notice should be given to the employee prior to making any contractual amendments, the clause itself may make provision for notice. However, even absent express provision in this regard, the employer must still notify employees in writing of the proposed changes, providing adequate notice with reference to the proposals made.

If the change is relatively minor, such as a slight change in working hours, as little as one month’s notice may be acceptable. If the change is only temporary, such as being asked to work at another branch for a few weeks, a short notice period may again be acceptable. In contrast, where the change is significant or likely to have an adverse impact on an employee’s life outside work, much longer will be needed. This could be where, for example, an employee is being asked to relocate to another part of the country.

In essence, what is classed as adequate notice will primarily depend on the nature and permanency of the change, although even minor or short-term changes can have a significant impact on certain employees. For example, if a new location is not within a reasonable commuting distance or an employee has caring responsibilities that would be impacted by a longer commute, they may need longer to make appropriate arrangements. In some cases, requiring that employee to work elsewhere may not be reasonable at all.

 

Should employees be consulted when using variation clauses?

The whole purpose behind incorporating variation clauses into contracts of employment is to avoid the need for further agreement when making certain changes. Strictly speaking, this means that, unless the clause itself makes provision for consultation, employees do not need to be consulted when an employer is making use of these clauses.

However, given that the use of variation clauses must be exercised reasonably, as well as the need to provide adequate notice of any proposed changes, employers are strongly advised to have regard to any objections raised before implementing any changes. By involving staff within their decision-making process, this may help the employer to explore alternative ways to avoid or implement the proposed changes, with everyone on board. At the very least, listening to what staff have to say is far more likely to minimise any conflict.

 

Are variation clauses legally binding?

Variation clauses — provided these are reasonable in scope, exercised reasonably and adequate notice has been given — are legally binding and enforceable. As with any contractual clause, they represent an agreement between the parties by which they are both bound, where any breach of that agreement can potentially result in legal action. This means that if an employer implements a change as per the terms of any variation clause and the employee refuses to accept that change, the employee will be in breach of contract.

Importantly, however, if the employer exercises the clause unreasonably or fails to provide adequate notice, they may themselves be in breach of contract. In the same way that if an an employer makes a change to a contract without getting the employee’s agreement, if they make a change by using a variation clause unreasonably, the employee may have the right to refuse to work under the new conditions or to say that they are working under protest and are treating the change as a breach of contract. The employee would also potentially have the right to resign and claim constructive dismissal before a tribunal.

 

Key considerations when drafting variation clauses

When drafting variation clauses, regard should be had to the types of changes the employer is trying to make advance provision for. It is also important to ensure that any clause is not drafted too widely, as this may be found to be unfair if ever scrutinised by a tribunal.

As such, the nature and scope of variation clauses is something that must be carefully considered at the drafting stage, prior to the employee entering into their contract of employment. This might be a clause applicable to one individual employee, such as someone senior who may be required to work all over the world. Equally, the clause may be applicable to all members of staff to protect against an economic downturn in the business.

In respect of minor amendments that may be needed, all employment contracts could include the following type of clause: “[The name of the employer’s organisation] reserves the right to make any reasonable changes to your terms and conditions of employment on written notice. Any minor changes will take effect from the date of the notice or any other date as specified. In respect of more significant contractual changes, these will only be made after employee consultation and with a minimum of one month’s written notice.”

However, most common examples of variation clauses will be drafted far more narrowly, specifying the term to which it applies, rather than a general provision allowing the employer to vary any term of the employment contract. For example: “Taking into account the responsibilities that you are required to undertake as part of your role, [the name of the employer’s organisation] may require you to perform your duties across the entire North West of England, at any of the company’s branches. Consequently, you hereby agree to accept any change in assignment, on reasonable notice, that meets such business needs.”

 

Best practice advice for employers

There are various pitfalls to avoid when seeking to make changes to an employee’s working conditions using a variation clause. This is because, even if the clause itself is reasonable in scope, it must still be exercised reasonably, with adequate notice given to the employee. As such, the existence of a variation clause does not necessarily guarantee that any changes proposed by the employer will go unchallenged by employees affected by those changes.

However, the following best practice advice can help to minimise any risk of a challenge being raised, or any conflict being caused at work, by making contractual changes:

  • Ensure that variation clauses are narrowly drafted and are reasonable in scope to help avoid any misunderstandings and to reduce the risk of legal claims
  • Before relying on a variation clause to make any changes, check the wording of that clause to ensure that any proposed amendments fall within its scope
  • Notify employees in writing of the proposed changes, providing adequate notice of when these proposals are due to take effect
  • Offer to consult with employees about your proposals, listening to any alternative ways to avoid or implement the proposed changes
  • Carefully consider the necessity for change where any objections are raised by staff
  • Provide employees with written reasons for rejecting any alternative proposals
  • Take into account any individual considerations, not least where an employee’s personal circumstances have changed since signing their contract of employment
  • Seek expert legal advice prior to implementing any changes to ensure that the variation clause relied on is not unreasonable and the context in which this is being used is fair.

 

Need assistance?

For expert guidance on making changes to employment contract terms and conditions, contact us.

 

Variation clause FAQs

What is a variation in the contract of employment?

A variation in a contract of employment refers to where express provision is made within that contract for changes to be made later down the line, such as asking an employee to work at different locations, as and when needed.

What are examples of variation clauses?

A common example of a variation clause is one requiring employees to work at other branches or offices across the UK, or even relocate overseas. Known as mobility clauses, these allow an employer to change an employee’s place of work.

Last updated: 29 December 2023

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