The impact of the pandemic has considerably changed the working landscape and businesses face further challenges in adapting their working practices as lockdown eases and employees return to the office. Many businesses have had to evolve in order to survive the impact of the pandemic and one result of this may require adjustments to be made to their employee’s contracts.
Most contractual variations are likely to relate to rate of pay, job role, hours of work and working location. As this could result in a fundamental change of terms it is likely that agreement from both parties will be required, otherwise it could be a breach of contract. You should consider the below and seek advice if you wish to alter the terms of your employees’ contracts without their consent.
How do I vary the terms of an employee’s contract of employment?
Before considering how to vary a contract of employment, it is worth recapping what a contract of employment is. A contract of employment sets out the rights and obligations which bind the employer and employee to the contract. The terms of a contract can be:
- express – terms which are explicitly agreed between the employer and employee, either in writing or orally. They can be set out in a letter of appointment, contract, staff handbook and/ or a collective agreement;
- implied – terms which have not been spelled out but which are (a) considered obvious, e.g. the employee will not steal from the employer or that the employer will provide a safe working environment, (b) necessary to make the contract workable (e.g. that an employee employed as a driver will hold a valid current driving licence or (c) the custom and practice of the business or industry which has been adopted over a period of time;
- statutory – rights given by legislation e.g. the right to be paid the national minimum wage or to paid annual leave. Agreements to contract out of statutory terms are normally void under the law.
When it comes to varying terms, the general principle is that an existing contract of employment can only be varied with the agreement of both parties, i.e. you must get the consent of the employee to make the changes to their employment contract.
You should first check the nature of the terms you want to change. As above, if it is a statutory right you cannot change this except to improve upon the right e.g. giving more than the statutory holiday entitlement or paying more than the national minimum wage. Otherwise check the contract to see if the changes are actually allowed within that contract, i.e. if you wish to vary an employee’s duties, you may have a clause stating that the employee must carry out such additional duties as you may specify, consistent with their position within the company. Such a clause would allow minor, reasonable changes to an employee’s duties, however if you were looking to change their duties completely, this is unlikely to be covered and so you would need to follow the advice set out below.
If the variation you wish to make is not within the terms of the contract, e.g. as above, check if you have a variation clause which allows you to make reasonable changes to the contract.
Even where you have a variation clause you should still try to obtain the express agreement of the employee to the variation. Note that an employee may not agree that a variation you wish to make is reasonable e.g., if you are requiring the employee to travel to a new office in a different location or if you are reducing the employees hours.
Any changes to the terms of employment must be notified to employees within one month and you must make sure that they are fully aware of any detrimental changes that are to be made and that they accept them, to be enforceable. Whilst a variation can be agreed orally, it is preferable to agree the variation in writing so that both employer and employee are clear on the changes.
Depending on the severity of the change (and the importance to you), you may wish to consider a “sweetener” in return for their agreement to the variation e.g. additional leave (paid or unpaid) or additional pay. As pay rises are a common and standard form of contract variation it may be sensible to try and time other variations for the same time as you give these as the benefit of the increased pay can be used to offset any other contract variations you are looking to implement.
If the employee does not give their consent to the variation, there are two options both of which contain risks of claims being brought against you:
- terminate the employee’s existing contract by giving the required notice and then offer to re-engage the employee on the new terms. This procedure would alter the terms of employment, however by terminating the old contract, you have effectively dismissed the employee and so, subject to them having the relevant qualifying period, they could claim unfair dismissal. Also, if you haven’t followed the Acas Code of Practice on Disciplinary and Grievance Procedures, then the dismissal could be held to be unfair;
- unilaterally vary the employee’s contract terms. The subsequent actions of the employee will determine what the outcome is, but it is important to note that the basic position is that a unilateral change to employment terms made by an employer is a breach of contract.
The employee has three options once you have informed them of the changes:
- they can continue working under these new terms, without objecting. It is likely then that they will be deemed to have accepted these changes in due course by virtue of their conduct and so the employment contract will continue, with the variation; or
- they could refuse to accept the changes and continue working on the old terms (whilst still retaining the right to seek damages for breach of contract and/or a declaration from the court that you must abide by the original terms) (this is often referred to as working under protest. However an employee who continues to work under protest for a long period of time will at some stage be deemed to have accepted the varied terms); or
- they could resign and claim constructive dismissal against you (subject to having the relevant qualifying period), treating the variation as a fundamental breach of contract, thus bringing their employment to an end.
Because of the potential risks of a claim involved in carrying out either of the above options, you should seek further legal advice on your individual circumstances and the risks involved before you take any action.
Further guidance on variation of a contract of employment can be obtained by speaking to our team of Consultants on 01223 855441.
Read more in this series of blogs “Back to work”
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