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Varying a Contract of Employment

19 November 2009

In the current economic climate, many employers are seeking ways to reduce staff costs. For example, both British Airways and British Telecom are reported to have offered staff increased time off work in return for a deduction in pay. However, when considering reorganising the pattern of working, it is important to remember that where this would necessitate adverse changes to an employee’s existing terms of employment, the employment contract 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. In serious cases, the employee would have the right to resign and claim constructive dismissal.

If you are proposing changes to an employee’s contract of employment, the first step you take should be to consult fully with them well in advance of the planned changes. Explain and discuss the reasons for the changes before inviting the employee to give his or her 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 the employee 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 employee agrees 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 employee written notice of the changes within a month of their taking effect.

If agreement cannot be reached, the employer can terminate the original contract, taking care to give the required notice, and offer a new contract to the employee, including the revised terms. If the employee accepts the new contract, continuity 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 reemployed 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 an employee’s 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.

For advice on changing the employment terms in employees’ existing contracts, please contact us.

Tonbridge: 01732 770660
Sevenoaks: 01732 747900
Email: [email protected]