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Contract of Employment: Varying Terms

Contract of Employment: Varying Terms
12 July 2017

We've talked before about the importance of having a written contract of employment. But what happens when you want to change terms of the employment contract? Maybe you want to give your employee a pay rise, maybe economic challenges mean you need to change overtime rates. Maybe your employee asks to change working hours.

Most employers with large numbers of employees have HR departments well versed in the nuances of employment law and will handle such matters. Small businesses who employ only a few staff rarely have that luxury. In this article we look at the basics of varying the terms of a contract of employment from the perspective of small businesses.

What are the terms of the contract?

With a written contract of employment in place most, if not all, the terms of employment should be understood by both parties. But there are other terms that will always apply, as well as anything you have document in the contract:

  1. express terms - the written terms in the contract and any verbal terms you might have agreed
  2. implied terms - the ones that are so obvious that everyone understands them e.g. don't steal from your employer, as well as some necessary for the job or industry standard practice
  3. statutory terms - e.g. the national minimum wage, statutory annual leave and many more.

You, as an employer, must comply with the statutory terms.  You may, of course, offer terms more generous than those required by law but you can't legally offer inferior terms.

How do I vary a contract of employment?

A contract of employment can only be varied by agreement of both parties.  Some contracts contain an express clause that say somethings along the lines of "your employer can vary these terms at will".  In practice, such clauses do not give employers all that much flexibility since the courts will place a narrow interpretation of what can be varied and to what degree.  The short of it is: don't rely on an express clause to allow you to change a contract of employment without agreement.

Discussion and agreement are they key to successfully introducing new terms in a contract of employment.  In some organisations employees will be represented by a union or some other group.  Small employers, however, will probably be dealing directly with their staff.  A good working relationship with your staff can be a great help in successfully agreeing new terms.  You'll know your staff, what is important to them, you might have some idea of how the changes you want to implement will affect them.  All this can make the discussions easier.

So, the starting point is to talk to your staff and ask for their agreement.  If they agree to your proposal (which is likely to be the case when offering a pay rise!) then you just need to set out the change in writing and get their written agreement.  An email would normally be sufficient if clearly written and unambiguously replied.

If your employee(s) don't agree then you should seek to negotiate and reach a compromise that to which you both agree.

Once you and your employees have agreed the changed terms, you must provide written details of the changes to their contract of employment within one month of the changes taking place.

What if we can't reach agreement?

If, despite your best efforts, you can't reach an agreeable compromise then it may be time to seek some advice.  Imposing changes without agreement (i.e. unilateral changes) will place you in breach of contract.  Not only is this likely to have damaging effects on your relationship with your employees, it may also leave you open to a range of legal action such as:

  1. claims of constructive dismissal
  2. charges for breach of contract in a civil court
  3. claims of unlawful deduction of wages (if employees' pay is affected) before an employment tribunal.

All of the above can have a hugely negative impact on your business as well as personally stressful.

A last resort may be to service notice to terminate the existing contact of employment (i.e. firing your employee) and offer to re-hire on new terms.  This is pretty extreme, though, and not to be undertaken lightly.  You would need to follow your dismissal process.  If you are considering going down this route then you should seek legal advice.

If you need help ACAS are a good starting point.  They offer a wide range of help and advice for employers (and employees) - much of it free.

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