Can an Employer vary an Employee’s Contract?

The short answer to this question is that it is usually legally possible to vary employees’ contractual terms only with their consent. However, there are various ways changes may be attempted and achieved.

If a change is a contractual change which adversely affects terms and conditions, the employer must follow a variation process with proper consultation.

First, employers should consider whether the proposed change is contractual or whether it is merely a change in policy. Policy changes may be implemented without the need to obtain agreement from the employees. If the change is contractual, then agreement will be needed to implement the change. Unilateral changes are unenforceable and usually are a breach of contract exposing employers to a claim against them.

There are a number of options to try to achieve change:

1. Consult the employees and hope that they will agree voluntarily.

• Explain the proposed changes to the employees.
• Discuss the reasons behind the change.
• Explain what will happen if the changes do not occur, for example, costs overwhelming income.
• Give employees the opportunity to raise their concerns and put forward their suggestions.

2. Offer an incentive to employees to agree, for example, a one-off cash payment, additional holiday or other benefits.
3. If the employees will not agree to the change the employer may have to impose the change. However, this option should be used as a last resort only. If the change is fundamental, it may amount to a breach of contract entitling the employees to:

• resign and claim constructive unfair dismissal
• continue to work, but make it clear that they object to the change
• claim breach of contract and damages for loss
• make an unlawful deduction of wages claim, if the change results in a reduction in pay.

4. Bring the original contracts to an end by contractual notice and then immediately re-engage on the new terms and conditions. Again, this is not without risk. By bringing the contract to an end an employer is in effect dismissing the employees and must therefore be able to justify their decision on the basis of some other substantial reason. In assessing whether a dismissal is fair the tribunal assesses:

• the presence of a sound business reason for effecting the change
• any alternatives
• the proportion of the workforce who were willing to accept the change
• the impact on the particular employees and their reasons for not agreeing to the change, and whether or not there was adequate consultation.

Any variation should be recorded in writing within one month of the change in order to comply with the Employment Rights Act 1996. If the employees agree to the change, they should be asked to confirm their agreement by signing a document recording the variation. The signed document should then be appended to the contract of employment.