Posted on Feb 13, 2015 in Employment by Amy Jones
From time to time, employers may have legitimate reasons to want to alter employees’ contracts. Amy Jones, Employment Law specialist looks at whether this is easier said than done.
If the contract has a clause which allows the employer to make amendments, surely the employees can’t refuse to accept the changes or complain about them? Unfortunately, that is not always the case and it depends on how the variation clause is drafted, as the National Audit Office found out to its detriment.
As a general rule, changes to any term of an employment contract must be mutually agreed. Although employers often reserve a general right to vary the contract unilaterally, tribunals will rarely enforce such clauses. In the case of Norman and others v National Audit Office (December 2014), the Employment Appeal Tribunal (“EAT”) considered whether an employer could rely upon a general flexibility clause to vary employee entitlements to the employees’ detriment without the employees’ agreement, i.e. unilaterally.
The employees worked for the National Audit Office (NAO) and were members of the Public and Commercial Services Union (PCS). Clause 2 of their offer letters stated that their terms and conditions were:
"...subject to amendment; any significant changes affecting staff in general will be notified by Management Circulars (MCs), Policy Circulars (PCs) or by General Orders (GOs), while changes affecting your particular terms and conditions will be notified separately to you".
In addition to the offer letters, certain sections of the HR manual were incorporated into the contracts, including one titled "Settlement of disputes":
"Wherever possible, management and the TUS will try to reach agreement before implementing any changes which affect staff. Changes to working practices or terms and conditions will not be implemented whilst negotiations are taking place, or whilst the issue is under referral to ACAS, unless management considers this essential to the operation of the NAO".
The NAO wished to reduce leave and sick pay entitlements. When PCS refused to consent to the changes, the NAO implemented the changes anyway (relying on clause 2 in combination with "Settlement of disputes") and informed the employees of the changes by letter and policy circular.
The employees brought claims in the tribunal for breach of contract, seeking to assert that their existing terms and conditions remained unchanged. The tribunal found in favour of the NAO, holding that the combination of clause 2 and "Settlement of Disputes" gave the NAO the right of unilateral variation.
The employees subsequently appealed to the EAT.
The EAT allowed the employees’ appeal and reinstated the employees' original terms of employment. It held that the changes were not incorporated into the employment contracts because the words "subject to amendment" came "nowhere near" the standard of being clear and unambiguous and established nothing more than the potential for amendment.
The EAT also found that "Settlement of Disputes" was not capable of being incorporated into the contracts because it was not a particular of condition of service. Even if the wording did permit the changes to be incorporated into the contracts, the changes were not incorporated on the facts. "Settlement of Disputes" only permitted those changes essential to the operation of the NAO. The decision to treat the changes as incorporated was taken in response to PCS' refusal to agree, rather than because the changes were essential to the NAO's operation.
This decision is a useful reminder that employers will generally find it difficult to rely on a general right to vary clause. Any general variation clauses will be scrutinised carefully by the courts and must be set out in clear and unambiguous terms. Failure to implement changes correctly can lead to employees being able to rely on their original terms and conditions, as happened in this case, or, in some cases, to resign and claim constructive dismissal (with potential compensation of up to a year’s gross salary).
Ideally, employers should always seek to obtain their employees’ express agreement to changes. How the employer approaches the task of changing terms and persuading employees to agree is key. The employer is essentially undertaking a selling exercise and should consider the following when communicating a proposed change:
Why is the change necessary? If the alternative is job losses, employees are more likely to view the proposed change as the lesser of two evils.
Do all of the changes have to be implemented at one time? Can they be phased in over time or with transitional arrangements to make the ultimate change easier to accept?
Can an additional benefit be offered in return for a detrimental change? This is often an effective way of securing agreement and does not necessarily have to be a financial benefit. Employers should consider whether there are any innovative ways to induce staff to agree.
Can the introduction of a change with something beneficial which will happen to employees at a certain time? For example, employees may more readily agree to a change to a contractual commission structure if it is introduced at the same time as annual salary reviews.
Employers should also make sure any variation clauses are carefully drafted and set out the type of changes tan can be made without the employees’ consent. Any significant changes should be made in consultation with the employees.
Amy Jones is a specialist Employment Law solicior and would be happy to discuss strategies for presenting changes to contract terms to employees. Call Amy on 01382 229111 or email firstname.lastname@example.org