Is it possible for employers to change the terms of employment contracts?

At first sight, the answer to this question would be: only by mutual agreement. But once you take a closer look there are many ways and situations that make it possible for an employer to unilaterally change the contractual terms.

• Collective bargaining agreements (CBAs) are binding for members of those employers’ associations (firms)  and labour unions (employees) who have concluded the respective agreements. In such case, any existing or newly concluded CBA will constitute new rules and obligations for the employee unless expressly stated otherwise in the employment contract. Since employers who are members of the employers’ associations do not know which employees are members of labour unions, they often include so-called “dynamic reference clauses” to extend the binding effect of the CBAs to all their employees whether or not they are part of the respective labour union. If the CBA is modified, the dynamic reference clause will include changes made in the employment contract.
• Terms of employment contracts can be changed if the contract is designed to be subject to modification by works agreement between the employer and the works council.  According to the German Federal Labour Court (Bundesarbeitsgericht), this is the case for all contractual terms with a so-called “collective nature” or if the possibility to modify the contract by works agreement is expressly stated. German labour courts have e.g. assumed a “collective nature” for contractual terms regulating working time accounts and overtime.
• The contract itself can include a reservation of revocation or of a voluntary status. Such provisions are often found in clauses regulating variable remuneration. The German Federal Labour Court has tightened the rules on when such reservations can be enforceable in relation to remuneration. In particular, the Court has ruled that remuneration which has already been earned by the employee cannot be taken away later due to a contractual reservation.
• Another way to unilaterally change the terms of a contract would be by way of a dismissal with the offer of altered employment conditions. Although this method can in theory be used to change only particular employment conditions such as remuneration, the Federal German Labour Court has set very high standards under which such alteration is legally possible.
• The easiest way to change the conditions of employment for the employer would be to exercise his right to give instructions. Even though such exercise would not change the terms of the employment contract, it could result in severe consequences for an employee such as a permanent relocation to another part of the country. The right to give instructions is limited by contract, works agreements, collective bargaining agreements and statutory provisions and may only be exercised under reasonable consideration of the employee’s legitimate interests.
• Last but not least, employment contracts can be altered by so-called “company practice” even without intention of the employer. If an employer provides his employees with a certain benefit and the employee can rely on the fact that such benefit will be provided in the future as well, this behaviour may bind the employer to do so. Technically, the company practice leads to a change of the employment contract. To prevent such “company practice”, most employment contracts include a clause that changes to the employment contract may only be valid in written form and that this clause itself may only be altered by written agreement.