Variation of contract

When is a change in working arrangements a breach of contract?

John O’Neill of Thompsons McClure solicitors considers the law relating to variation of contract and sets out the options for employees unhappy with a change in working arrangements imposed by their employer.

All employees have a contract of employment which consists of the agreement between employer and employee about working arrangements including pay, hours, holidays etc. Ideally, this should be a written document and should be as detailed as possible. In unionised workplaces, contract terms will usually be established by collective agreements.

 
Although there is no legal requirement on an employer to provide a written contract, there is a legal requirement to provide a written statement of particulars of employment to an employee which should outline main terms and conditions including names of employer and employee, date employment began, rate and frequency of pay, hours, holidays, any sickness pay and pension scheme/s, notice, job title/duties, place of work, and reference to any incorporated collective agreements. Both parties are bound by the contract and generally neither can vary the contract without agreement.

In considering variation of contract, it should be noted that a range of legislation may be relevant including in relation to flexible working arrangements, indirect discrimination, reason-able adjustments under the disability discrimination legislation, the Working Time Regulations and, in the case of a business transfer, the TUPE Regulations1. This article does not address these issues but rather is concerned with the general principles relating to variation of contract.

Permissible unilateral variation?

An employer who seeks to force through a variation of contract without agree-ment will potentially be acting in breach of contract. In considering whether any proposed change amounts to a potential breach of contract, two initial issues need to be considered. Is the term to be varied a term of the contract? If so, does the employer have the right to unilaterally vary the term?

n Non contractual terms

Terms may sometimes be considered as discretionary or ‘non-contractual’. In considering whether or not a term is contractual, the issue is whether or not there was an intention to be legally bound. Thus, the unilateral removal of certain allowances may be considered not to be in breach of contract if the allowance was clearly discretionary or non-contractual. A specific statement in a contract that entitlement to a benefit is non-contractual will generally exclude entitlement. However, in the absence of certainty, the courts will be reluctant to accept that terms are non-contractual. In Albion Automotive v Walker & Others 2002, the Court of Appeal upheld a tribunal’s finding that an established custom of enhanced redundancy payments was sufficient to establish an intention by the employer to be contractually bound to such payments.

n Power to vary the contract

Terms of a contract may be lawfully changed where such change is specifically authorised by a contract term. However, the courts will not always uphold such a term.

The case of Wandsworth London Borough Council v D’Silva 1998 established that clear language is required in the contract before the courts will allow such unilateral variation and suggested that the courts may not uphold such a power where the result would be harsh and unreasonable. Thus the operation of unequivocal rights of unilateral variation may be limited by invoking the implied term of trust and respect so that a term could not be used in such a way as to breach that term and destroy the basis of the contract. This is in accordance with the approach the courts have taken to limit the operation of apparently unrestricted mobility clauses, as in United Bank Ltd v Akhtar 1989 where a claim for constructive dismissal was upheld, despite a mobility clause, where an employee was required to move city in six days with no con-sideration of his personal circumstances. Another possible limitation on unilateral variation clauses would be under the Unfair Contract Terms Act 1997 as such a clause could be seen as unreasonably seeking to alter the basic obligations of the parties (Bridgen v American Express Bank Ltd 2000).

 
Unauthorised changes

Where a variation is not authorised by contract, it may still be implemented without breach of contract in four ways: express agreement between parties; implied agreement through conduct of employee; collective agreement which is binding on employee; or termination of the existing contract and re-employment under new different contract.

n Express agreement

Agreement must be voluntary. If it can be shown that the employee was under duress then he or she cannot be said to have agreed. It should be noted that the employer threatening that the employee will be dismissed if he or she does not sign a new contract does not amount to duress.

n Implied agreement

This will usually arise where the employer purports to unilaterally vary the contract by imposing new terms and conditions and the employee is seen to accept this by his or her behaviour or ‘acquiescence’.
The courts are generally reluctant to find that employees have consented to variation of contract in the absence of express agreement. This is particularly so in the case of changes which do not have immediate effect such as mobility clause or sickness pay (Jones v Associated Tunnelling Co Ltd. 1982 and Apuru v Iceland Frozen Foods plc 1996).

n Collective agreement

As long as a collective agreement is incorporated into individual contracts, employees will be bound by any change negotiated by way of collective agreement. Employees need not be union members or even be aware of the collective agreement to be bound.
Incorporation of terms may be express ie the individual contract expressly states that terms are governed by a collective agreement.
Incorporation may also be implied where there is a well-established custom that terms of collective agreements are incorporated into individual contracts (Henry & Others v London Transport Services Ltd 2002).
When terms of a collective agreement are incorporated into individual contracts, they are legally enforceable as between the employer and the employee (Robertson v British Gas Corporation 1983).

n Termination of contract

An employer who wishes to change terms and is unable to do so by agreement will sometimes terminate the relevant contract and offer new contracts which include the variation.

Where the employee is actually dismissed for refusing to accept a new contract, a dismissal may or may not be unfair dismissal depending on the circumstances. If the employer can show a good business reason for the changes, this will likely mean that the employer can establish that the dismissal was for ‘some other substantial reason’ and thus potentially not unfair. However, the question as to whether the employer behaved reasonably is also considered: employers who consulted with the employees and unions seeking agreement of employees, considered their views, considered alternative jobs etc, are more likely to be considered to have behaved reasonably. If, however, the employer has simply sought to force through the proposed changes with little or no consultation, it is more likely to be considered unreasonable. Also, in considering the issue of reasonableness, the tribunal will consider whether the disadvantages to the employees outweighed the advantages to the employer or visa versa.

Unilateral variation of contract: options for the employee

Where an employer is unable to get agreement and imposes the new term/s or dismisses the employee for refusing to accept the change, the employee has four options: ‘stand and sue’ (ie stay and work ‘under protest’ and bring a claim for unlawful deductions or breach of contract) in the case of a fundamental breach, resign and claim constructive dismissal; where the change amounts to the termination of the old contract and the introduction of a new contract, continue to work under the new contract and claim unfair dismissal in relation to the old contract or refuse to work the new terms eg if the new terms involve different duties or hours.

n Stand and sue

The employee works on under protest and brings an unlawful deductions or breach of contract claim for loss arising from the employer’s breach. In Rigby v Ferodo 1988, where the employer cut the wages and employees continued to work but expressly did not accept the wage cut, the House of Lords found that as long as there is a continuing contract, not terminated by either side, the employer will remain liable for any shortfall in contractual wages.

In such a situation, employees would need to ensure that they bring any such claim soon after such deductions commence or continue to make it clear that they have not accepted the change or they may be considered to have agreed to the change despite an initial protest. In the case of Henry & Others v London General Transport Services 2002, the Court of Appeal found that ‘it would be extremely difficult to conclude other than that the employees had accepted the revised terms’ where the employees had initially presented two petitions against the changes, and then worked under those terms for two years before claiming for unlawful deductions.
Damages for breach of contract will only cover direct financial loss. Some changes, including a change in working hours or duties, may involve no loss. In such a case the only potential remedy from the courts (in the absence of a constructive dismissal or ‘Hogg v Dover College’ unfair dismissal claim – see below) would be to seek a declaration or an injunction. This would be unlikely to succeed as the courts are most reluctant to interfere with the performance of employment contracts.

n Claim constructive dismissal

Where an employer seeks to impose variation and an employee resigns because of this, there may be a constructive dismissal which may or may not be unfair depending on the employer’s behaviour. Any such dismissal will likely be found to be fair if employers can show a genuine business need (‘some other substantial reason’) and that they acted reasonably in seeking agreement of employees and undertaking consultation (Savioa v Chiltern Herb Farm Ltd. 1982). If, however, the employer has simply sought to force through the changes with little or no consultation, it is more likely to be considered unfair.

n Remain in employment and claim unfair dismissal

Where the change of contract terms is so fundamental (eg an effective demotion) that the employer can be taken to have terminated one contract and replaced it with another with substantially different terms, the employee may claim unfair dismissal even though still employed by the same employer (Hogg v Dover College 1990).

As discussed above, if the employer can establish a fair reason for the changes and engages in meaningful consultation before seeking to impose new contracts and otherwise acts reasonably, any such unfair dismissal claim may then be unsuccessful as the employer may be found not to have acted unreasonably.

n Refuse to change

If the employee simply refuses to go along with the changes, eg by refusing to carry out the changed duties, the ball is back in the employer’s court. If the employer dismisses the employee, the employee may then claim unfair dismissal or wrongful dismissal.

1. A variation of contract by reason of a transfer is not valid as contrary to regulation 12 of TUPE Regs.

© Law Centre (NI) October 2004