Amending a contract of employment
With the appearance of a greater amount of legislation relating to employment every year, it has become necessary to issue new contracts of employment much more often than in the past. This article hopefully will help you minimise the time needed to deal with amending them.
When do you need to change an employment contract?
Most situations in which contracts are changed relate to a variation in the work the employee carries out.
A new employment regulation does not always require you to change an employee’s existing contract. Much new legislation puts automatic obligations on you as an employer and gives your employees greater rights, perhaps requiring you to change your employment policies, but not individual contracts. Your employees will have strengthened rights regardless of their existing contractual terms (which become void).
A contract will not need to be varied if it already allows for a change to be made (for example, if the terms of the contract include a flexibility clause), or if the changes do not vary an express or implied right of one of the parties.
Most new legislation now applies to all staff. However, it is sensible to check and be certain that it does apply to your staff, before you worry about changing their contracts of employment.
Notification in writing
A written contract records the terms of the agreement between the employer and the employee.
The law refers to the necessity for an employer to hand to an employee within two months of the start of the employment, a statement of particulars of the employment. Simply handing your new employee a list of required terms does no more than satisfy your legal obligation.
It is much better practice to present a contract to a new employee when the job offer is made. The signature of both sides to the agreement provides proof that both of them intend to be bound to it.
Verbal agreement to a change is sufficient to effect a variation, however, it is always advisable to follow up with written confirmation, especially where the changes relates to a reduction in remuneration. E-mail (asking for a confirmation that it has been read and is correct) is a perfectly adequate method of communication.
Ways of changing an employment contract
If the contract itself doesn’t provide for changes to certain terms to be made, then there are three ways to vary it:
unilaterally imposing the change and relying on the employee's conduct to establish implied agreement
terminating the employee's employment and offering re-employment under the new terms
Express agreement is the simplest and most effective way to make changes. It requires having the employee agree to the new terms.
If the employee continues to work within the terms of the varied contract, it could be shown that he or she accepts the new terms. This is known as implied agreement. If you are an employee and you oppose the changes, it is important to make clear you are working under protest and that you do not accept the new terms.
If an employee works under the new terms but makes clear that he or she does not accept the changes, he or she does not lose the opportunity to remain in employment and sue you. Unless he or she expressly accepts the employer's repudiation of the contract and brings the employment to an end, or the employer's act of imposing the change can be construed as notice of termination of employment, the contract will continue and the employer will remain liable for any losses suffered by the employee.
Where employees refuse to expressly agree to a change, the employer's best option is to terminate the existing contract and offer continued employment under the new terms. However, there could be some complications relating to dismissal.
Provided that you have served due contractual notice on the employee (or bought out the notice period with a payment in lieu of notice), you will not be liable for a wrongful dismissal claim. However, employees may be able to claim constructive dismissal if you state an intention to dismiss on notice at some point in the future.
Even if you offer continuing employment on revised terms, termination of the existing contract will constitute a dismissal in law. Employees will be able to bring unfair dismissal claims in the ordinary way, even if they choose to accept the offer of new employment.
If an employer imposes a change in terms on an employee, the employee may choose to resign and bring a claim for constructive dismissal rather than continue to work under the new terms and bring a claim for breach of contract or unlawful deduction from wages.
When contracts are changed for many staff, each needs to be done so individually
It might seem more efficient for the business to make changes somehow to the terms of a group of employees. However, because each contract is between an individual and the business, one can only be changed with the implicit agreement of the parties to it.
Changing other terms at the same time
What you vary in the agreement is for you to decide. New regulations may make some change compulsory. There is no reason why you should not make other amends at the same time. However, you shouldn’t use new regulations as an excuse to "sneak in by the back door" amendments that you hope your employee will not notice.
If you do not have the positive agreement of your employee to a change, then the changes are likely to be void because agreement is the essence of a contract. We strongly advise that any change to an employment contract should be thoroughly explained.
If the original contract was made more than a couple of years, it may be better to start afresh with clean modern versions than to amend old ones. That way, you will pick up any other new law you might not have known about.
How to approach staff
The most important point when making a change to employment terms is to make sure the employee is aware of the impact of the change you propose and that he or she accepts it. A signature may not be enough before a tribunal later if someone says that they did not understand what they were asked to sign.
Your approach really does depend on the size of the organisation and the relationship with individual staff members. Explanation and consultation in advance of issuing new contracts reduces risk of future claims of unfair treatment.
We would recommend starting by explaining the proposals to the directors and managers. Executive directors are employees to whom the new requirement is likely to apply as well.
When management level staff understand the implications of the changes and have been given the opportunity to comment on the changes, you may wish to publish a new model contract (or at least the terms that will change) on the company intranet or in a newsletter, and allow all staff to make comments, perhaps anonymously. Introduce the changes positively and stress that the law compels you to make them (so far as it does so).
Make any amendments you think may be necessary to the model terms, and then hold a staff meeting, all together or by department, to explain areas where there has been misunderstanding. If you do not arrange the meeting quickly, you may find much time is lost in informal staff debate about your proposals.
Have the senior management team sign to their contracts (which may be in different form).
Write individual but identical letters to all other employees summarising the changes and confirming why they are necessary. Provide an opportunity for one-to-one meetings with any who want more information or who have special requirements.
Beware of making exceptions, which could open the door to wider disagreement. Ask for the return of signed contracts within 3 days.
Collect the contracts. Check that each has been signed and dated.
If the central negotiations in the past have included contract terms, then you may be able to negotiate these changes centrally. It will still be good practice to hand a copy of the new terms to each employee.
What if an employee refuses to sign the new contract?
Provided the new agreement contains no changes other than new legal provisions, we take the view that you are within your rights simply to hand or post a copy to that staff member, explaining that it constitutes a change to the particulars of his employment.
If however, you have suggested additional changes too, then your position is entirely different. You must decide how important the changes are to you and whether they are such that they affect the contract fundamentally. If you have failed to persuade your employee that the changes are in the best interests of the business and are reasonable, then you must choose the level of persuasion you are prepared to apply. If the change you propose is substantial, it is likely that your employee would succeed in a claim before an employment tribunal.
Each case will depend on its own facts, but you should avoid placing your employee in a position of "take it or leave it". Negotiate as far as you can. Be reasonable. Look for alternatives. While every case depends on its own facts, it is unlikely that you would fail to defend the tribunal case successfully if you proposals were reasonable.
Transfer of Undertakings (Protection of Employment) Regulations
Separate principles apply to the variation of terms of employment in connection with transfers of undertakings under the TUPE 2006. You can read more about them here.
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.
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