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13 March 2015

Employer could not unilaterally vary employees’ contracts under flexibility clause

In a recent decision, the Employment Appeal Tribunal (EAT) has provided a useful reminder of the difficulties employers will face when trying to unilaterally vary their employees' contracts of employment.

Background

As a general rule, any changes to a contract of employment must be agreed by the employer and the employee.  Although contracts often purport to give employers a general right to vary the contract unilaterally, tribunals are reluctant to enforce such a variation, unless it has been agreed by the employee.

Facts

The claimants were all employees of the National Audit Office (NAO).  Their contracts all contained a clause which stated that their contracts were “subject to amendment”, followed by a procedure by which they would be notified of any changes.

The contracts also set out entitlements to additional leave (called “privilege leave” by the NAO) and sick pay.  The NAO wished to reduce the amount of privilege leave that employees could take and cut entitlement to contractual sick pay.

The NAO first sought to agree these changes with the trade union representing the employees.  After the union refused to support the changes, the NAO unilaterally gave the employees notice to vary their contracts of employment, in order to bring about the proposed changes.

The employees brought claims in the employment tribunal, seeking a declaration that their terms and conditions had not been varied.  At first instance, the tribunal found that the NAO had the contractual right to unilaterally vary the employee’s contracts.  The employees appealed to the EAT.

Decision

The EAT allowed the appeal and reinstated the employees’ original terms of employment.  The EAT noted previous case law, in which it had been established that a power of unilateral variation must be expressed clearly and unambiguously.

The EAT therefore held that the phrase “subject to amendment” came “nowhere near” the required standard and expressed nothing more than a mere possibility that the employees’ contracts might be amended.

Furthermore, the requirement for the employer to provide notice of changes to its employees did not establish the right to make unilateral changes but provided only a right for the employees to be informed of any changes, once agreed.  The EAT concluded that the NAO had not conclusively reserved the right to amend the employees’ contracts.

Comment

This case demonstrates the difficulty employers are likely to experience if seeking to vary contracts of employment without their employees’ agreement.

Any purported right to vary clauses will be subject to careful scrutiny and authority to do so unilaterally must be set out in clear and unambiguous terms.  This case further narrows the ambit of acceptable language.

Although changes implemented by a general variation clause might sometimes be to an employee’s detriment, the changes are often reasonable or administrative.  In cases such as this, where the employer proposes to make significant changes, there is a greater need for certainty and precision in drafting.  Specialist advice on both the drafting of variation clauses and strategies for effecting change is strongly advised.