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A contract of employment establishes the terms of employment between an employer and an individual employee. Employers can sometimes request changes to employment contracts but they will need to check the legal process for making the changes and discuss them with employees even if these are reasonable changes. Once you have established that it is possible and lawful for you to change the terms of the existing contract, this article discusses how you should go about doing it.
Step 1: Check your contract of employment
Some employment contracts, such as the ones created on Legislate, contain a variation term (aka a flexibility clause). These clauses allow for variation (i.e. change) to the terms of a contract by one or more of the parties. An employer must check the employment contract and the employee's terms they want to change to see if it has a variation clause. If it does, the employer must confirm that the clause is indeed enforceable. Some variation clauses limit which terms can be changed or prescribe a process that must be followed in order to change a term. Does the proposed change fall within the scope of the clause? How is it drafted? The more vague and general the clause is, the less likely it is to be enforceable. Further, you must check the rest of the contract to confirm that a change is in fact needed, and that there is no provision which already provides for what you are trying to do. For example, a pay rise can be confirmed simply in a letter or email. In certain cases, it might be easier to establish a new contract of employment which will replace the previous one.
Step 2: Consultations
It is very important to consult with the employee or employee representatives (e.g. a trade union or staff association) before making any change to the contractual terms of the employee's contract, even if the employer is entitled to make such a change due to a variation clause. For example, changing the place of work can impact the employee's commute or residency and must therefore be communicated to them in advance, even if they have a mobility clause in their contract.
Equally, consultation opens up valuable dialogue, maintains a good working relationship between the employer and employee, and may even help the employer prove that they acted reasonably if a dispute arises further down the line. You should establish why the change is necessary and what you intend to achieve by it, then explain this to the employee. The employee should take time to consider the change, and if they have any concerns, they should be allowed to offer alternative solutions.
Note that according to employment law it is a legal duty to conduct consultations in the follow situations:
- If the proposed change affects 20 or more employees, then under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992, a collective consultation needs to take place.
- If the proposed change relates to the employee’s pension scheme, then the Pensions Act 2004 imposes some additional consultation requirements.
- If the Information and Consultation of Employees Regulations 2004 apply and there is an information and consultation agreement in place between the employer and employees, certain consultation processes need to be followed.
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Step 3: Reconsider
Depending on whether or not the employee or their representative agreed to the proposed change, there are different avenues open to changing terms. If they agreed to the change, you can move to Step 4. However, if they rejected it, you can either (i) abandon the proposed change, (ii) continue to negotiate and look for a compromise, or (iii) attempt to make the change unilaterally i.e. without the employee’s consent. Let us look at this third option.
An employee is likely to refuse a change which is detrimental to them unless the employer can provide a sound business reason, but if you are committed to making the change anyway, then you may do the following:
- Go ahead with the change — The employer can just impose the change on the employee, who in turn can either accept it, work under protest, or resign and claim constructive unfair dismissal. If an employer forces a change and an employee adopts it, then that’s that. However, the employee can choose to continue working but make it expressly clear that they reject the change and are bringing a claim for breach of contract. The employee can also choose to resign and bring a constructive unfair dismissal claim because the change amounted to a fundamental breach of the terms of the contract.
- Fire and rehire — The employer can dismiss the employee (by following the correct procedure) and then immediately hire them back on a new employment contract which has the contract changes. This method effectively terminates the existing employment and starts a new one on new terms. If an employee has had over 1 year of continuous employment, they can bring a claim to the employment tribunal against the employer for unfair dismissal from the previous employment contract.
Step 4: Make the contractual changes
In order to implement a change to the conditions of employment, an employer must communicate the change with the employee. This could be done through a letter which explains the change, the date from when it will take effect, and where more information can be accessed e.g. in a staff handbook. The employee should be asked to sign the letter and return it as acknowledgement of their understanding and acceptance of the change. A change can also be implemented by signing with the affected employee a new contract which contains an "Entire Agreement" clause which will state that the terms of the new contract replace those of the previous agreement.
If the change relates to any information in the written statement of particulars of employment, then there’s a legal obligation under section 4 of the Employment Rights Act 1996 to give the employee written notice of the change within 1 month of it taking effect.
An Employment Contract can be created on a contracting platform such as Legislate by answering a few simple questions and choosing the key terms of your agreement. The Employment Contract can be signed and sent to the other party to sign on Legislate as well. Unlike getting templates online, Legislate guarantees Employment Contracts which are up-to-date with the law, lawyer-reviewed and simple to understand.
The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.