In law, a contract is formed when an offer of terms by one party is accepted by another, consideration is given in exchange for acceptance and the parties intend to create legal relations.
Note that a contract of employment may be comprised of more than one document. It may be evidenced solely by a statement of particulars issued as a legal requirement pursuant to section 1 of the Employment Rights Act 1996. But it may be comprised of a more extensive written contract, plus other terms incorporated by reference or by custom and practice (such as the matters set out in an employee handbook). Whether a particular provision in a handbook is contractually binding depends upon whether it confers a right on employees or whether it merely sets out good practice which managers are intended to follow. The specific terms comprising a contract of employment are a matter of fact in each case.
Contrary to popular belief, an employment contract can generally only be varied using the same basic process that is required to create a valid contract in the first place, i.e. the offer of a change to the contract, acceptance, the passing of consideration and an intention to create legal relations. The consent of the employee to the change is usually a prerequisite.
With regard to changes that are favourable to employees, these are rarely challenged. Therefore it may appear that the employer has unilaterally varied simply by notification of the change, as the employee is likely to accept, consideration is the favourable change itself or continued employment and both parties are happy that the change is legally binding.
But detrimental changes are clearly more problematic as employees are likely to object. An employee’s silence may not be sufficient to imply consent by conduct.
A right to unilaterally vary can exist if the employer has already reserved that right in the original contract. However, an express variation clause needs to be restricted to a particular aspect of the contract (as opposed to a general right to change any term) and must be expressed in unambiguous terms. A common example is a mobility clause allowing an employer to change a place of work within a reasonable distance. In addition, a clause conferring a right to vary must not be exercised arbitrarily, capriciously or unreasonably.
The courts have not upheld general variation clauses often or with consistency.
To achieve an unfavourable change, which is not specifically and clearly authorised by the original contract, an employer can lawfully do so by:
- negotiation with a view to achieving acceptance; and/or
- a consultation process in which it is made clear that in the event of rejection of the change, the employer may terminate the existing contract and offer a new contract which contains the varied terms.
The latter risks claims for unfair dismissal, unlawful deduction from wages and breach of contract which can be minimised by planning and execution of the consultation process. The process will need to meet the same consultation requirements as a collective redundancy (pursuant to s.188 of the Trade Union and Labour Relations (Consolidation) Act 1992) where the employer proposes that 20 or more employees may face termination of employment and the offer of reengagement, (as well as individual consultation requirements), or an additional risk of a protective award claim would be created.
As can be seen from the above, the employer’s flexibility with regard to detrimental contract changes is limited and should be approached from a position of careful consideration rather than imposition. However with appropriate employee engagement and process, such changes are capable of being made.
For further information on the issues raised in this article, please contact us on 020 7925 8080 or by email at firstname.lastname@example.org