Employment Contracts

by Kate Russell

Variation of contract

There are several ways in which an existing contract may be varied.

Note

The most common example of an agreed change is an increase in salary.

Variation by mutual agreement

Most changes take place by mutual consent. It is always sensible to obtain express agreement, in other words documented evidence that the employee has agreed to the change. Where a contract has been varied, confirmation of the varied term or terms must be confirmed in writing within four weeks of the effective date of the variation.

In some cases, agreement can be implied if the employer proposes a change and the employee carries out the job under the changed conditions without complaint. However, there can be problems with this, especially where the terms are not immediately effective. It is still advisable to try and obtain written agreement.

Variation by collective agreement

Where an employer negotiates with a recognised union or other body that represents the interests of the workforce, the variation could become incorporated within the individual contract of employment either by an express provision or by implication or custom and practice.

The outcome of collective agreements should be expressly incorporated into contracts and this can be achieved by inserting wording which indicates that employees are employed on the basis of any national or local agreements currently in force.

Variation by flexibility clause

Some contracts of employment contain a clause giving the employer the right to vary the terms of the contract. They may, for example, relate to an employee’s rate of pay, working hours, place or conditions of employment.

However, this does not give you carte blanche to make any changes you want. Even with such a clause, the changes are confined to those of a minor, non-fundamental type.

Variation by statute

If legislation is passed with requirements that exceed those of the existing contract, the new statutory terms will automatically replace the contractual terms. A topical example is the National Minimum Wage, which gave employees and workers the right to a minimum hourly rate of pay. For current rates see the Statutory rates page.

Variation by dismissal and re-engagement

This operates where there is no consent and change can only be achieved by the employer terminating the existing contract and offering to re-engage the employee on different terms. This is not a course to be recommended as there is the strong possibility of any unfair dismissal claim succeeding.

Example

In the early 1980s, Rupert Murdoch wanted to move his newspaper print works from Fleet Street to Wapping. The workforce was still heavily unionised and they refused to move voluntarily, so he dismissed them and recruited new staff. They picketed the new works for months and it was an acrimonious and highly public dispute.

Variation by custom and practice

Some terms and conditions of employment become established because things have been this way for a period of time. They are often not written down but rapidly become accepted.

Custom and practice is one of various ways that terms may become implied into an employment contract. In order for a term to become implied by custom and practice it must be, ‘reasonable, notorious and certain’.

In other words the term must be:

  • fair and not capricious,
  • well established over a period of time,
  • known to employees,
  • clear and unambiguous.

The fact that a benefit has been granted by an employer for a number of years will not necessarily mean it has become a binding entitlement. Firstly, this is because the term must be known to the workforce so that employees have a reasonable expectation of receiving the benefit. For example, if details of the benefit are published in an easily accessible document such as a staff handbook this might point towards an implied term. However, if information about the benefit is set out in a restricted policy document available only to a small group of management or HR, this would point away from the benefit having become an implied term. Secondly, the employer must have behaved in such a way which suggests it felt a sense of legal obligation to provide the benefit.

Ultimately, the question a tribunal or Court will ask is whether the circumstances demonstrate that the parties intended the term to form part of their contract? In other words, can they be taken to have accepted that the practice has attained contractual status?

The burden of establishing that a practice has become contractual is on the employee.

 

Example

Ms Shumba and three others worked for Park Cakes Ltd. They had previously been employed by another employer and their contract of employment had transferred under TUPE. Two years later, all four were dismissed by reason of redundancy. At the date of redundancy they claimed an entitlement to an enhanced redundancy package of double the statutory redundancy payment and without the statutory cap on the reckonable service or on a week’s pay plus a further lump sum of £600. They asserted that their previous employer had operated such a scheme over many years and had applied it whenever redundancies were made. Park Cakes Ltd did not dispute that the previous employer had a group wide policy of paying enhanced redundancy terms however they argued that this was simply a matter of policy and not a contractual entitlement.

There were two non-contractual internal company documents setting out the enhanced redundancy policy. Evidence was given by a former shop steward of the previous company, that during his tenure from 1978 to 1996 that at least 70 redundancy rounds every employee selected for redundancy received an enhanced payment. The internal policy documents were company documents which in evidence the HR person confirmed were not routinely handed out to employees and were mainly for the internal use of managers and HR personnel. Evidence was also given that since the TUPE transfer in 2007 the company had made a large number of employees voluntarily redundant on terms which did not incorporate the enhanced redundancy package.

The Employment Appeal Tribunal held that the former shop steward was best placed to know what had taken place therefore in the absence of any challenge to his sworn evidence, it found that the enhanced terms had been paid consistently and without exception prior to 2007.

 

In considering what, objectively, employees should reasonably have understood about whether redundancy benefits are conferred as a right, the relevant circumstances will typically include the following: (1) on how many occasions, and over how long a period, the benefits have been paid; (2) whether the benefits are always the same – any inconsistency during the period relied on as establishing the custom is likely to be fatal; (3) the extent to which the enhanced benefits are publicised generally; (4) how the terms are described. If an employer clearly and consistently describes enhanced redundancy terms in language that makes it clear that they offered as a matter of discretion – e.g. by describing them as ex gratia – it will be hard to see how the employees or their representatives could reasonably understand them to be contractual, however regularly they may have been paid; (5) what is said in the express contract; (6) the equivocalness of the employer’s behaviour.

Where such customs have grown up and been accepted, employers need to recognise that to change them suddenly, without due notice and consultation, may lead to successful claims for constructive dismissal.

Confirming the Variation

A contractual change must be confirmed in writing within four weeks of the date of variation. You don’t need to reissue the whole set of terms and conditions again, only the part that has been changed.