At common law, a contract can only be amended in accordance with its terms or with the agreement of all the parties. An employment contract is no different – an employer can only change its terms if the contract allows or if the employee agrees to the changes.
It is likely that certain terms will be changed several times during the employment relationship, such as terms relating to an increase in pay or promotion. These changes are likely to occur by mutual consent and so will not cause any problems – what is more difficult is a change to terms which, arguably, is to the employee’s detriment.
Changes to terms permitted by the contract
Before making any change, the employer should first check if it is permitted by the terms of the contract itself. If so, the employer will not need the consent of the employee to make the change.
For example, there may be an express right in the contract to make the type of changes proposed, such as to the place of work or job description. This would be a specific flexibility clause. Alternatively, there may be a general flexibility clause in the contract which gives the employer a general power to vary the terms of the contract.
However, specific flexibility clauses will be interpreted narrowly by the courts – any ambiguity will be decided in favour of the employee –and if the employer seeks to rely on such a clause, it will be subject to the implied terms in the contract, such as the implied duty of trust and confidence, so that the employer’s right to make changes must be exercised reasonably.
General flexibility clauses which attempt to give the employer the right to make changes to any terms of the contract are rarely enforced by the courts, and employers are unlikely to be able to rely on such clauses to make changes which are to the employee’s detriment, such as withdrawing contractual benefits.
What if the changes are not permitted by the contract?
Where the change proposed by the employer is not permitted by the existing terms of the contract, the employer has three options:
- Obtain the employee’s express agreement to the change
- Unilaterally impose the change and rely on the employee’s conduct to establish implied agreement to the change
- Terminate the employee’s employment and offer re-employment on the new terms
The most straightforward option of course is to obtain agreement. However, if this is not possible, and the employer chooses to impose the change, the courts are likely to find that the employee has impliedly agreed if he carries on working without making any objection, and the change has an immediate practical impact on him, such as a pay cut or a change in working hours. However, if the change does not have an immediate impact, such as changes to post-termination restrictions on the employee, the employer is unlikely to be able to rely on the employee’s silence as an indication of consent.
If the employer chooses the third option of terminating the contract and offering re-employment on the new terms, there will be the risk of claims arising on the termination but he can minimise these by giving proper notice under the contract and by taking procedural steps to avoid a claim of unfair dismissal.
In addition, where a large number of employees (at least 20) are involved, the employer will be under a statutory duty to consult collectively about the dismissals.
It should be noted that specific rules apply to changing the terms of employment in the context of a business transfer, which are not covered in this post.