Varying a contract

As another football season comes to an end it isn’t just players with contracts being considered. If you are looking to change an Employee’s contract from within your wider team you should consider whether you have the legal grounding to do so, rather than relying on the old saying “that's just how football works…”

No implied power to change the terms

Neither the Employer or the Employee (i.e., the parties subject to the contract) has an automatic right to change the contract's terms, even if they are out of date, or inconvenient. In the event of a dispute between Employer and Employee as to the terms, a court will not make a fair contract. Instead, its role will be to enforce only the terms that the parties have agreed. Therefore, it does not matter (and it is essentially irrelevant) that the contract does not reflect the intention of one of the parties.

This should reinforce the importance to Employers that they should include all the required information in a contract, to reduce the possibility of ambiguity and to avoid any of the terms being interpreted in a way that is inconsistent with intentions.

If an Employer wishes to take advantage of flexibility in relation to any terms in a contract, it should include an express term to this effect in the contract document.

Discretionary and flexible terms

The contract may give the Employer a discretion to change a term or to withdraw a benefit. These terms are always strictly construed, and exercising any such discretion should be in accordance with mutual trust and confidence.

Previous tribunal decisions have indicated that the Employer should:

• have a good reason for exercising the discretionary or flexible provision

• offer a reasonable change

• if only one employee's terms are changed, be able to justify the selection

• consult the employee first

• give the employee time to make the change, or allow for a transitional period for the employee to become adjusted to the change

• give any available help and

• be able to demonstrate that any exercise of discretion is not unreasonable and is rational.

  
  

Machinery to change the terms

The contract may contain an express power to change the contract terms or some method or procedure by which the terms can be changed. For example:

• After consultation

• After notice

• A right to make any reasonable change

• Incorporating collective agreements

• Incorporating handbooks and schemes

• Duty to reject

• Mutual trust and confidence

The agreement of the parties

An Employer can make an offer to an Employee setting out proposed new terms. The Employee is free to accept this offer or not. Note that the Employee does not have to actively refuse it, unless the contract terms so provide, and so, if an Employee doesn’t respond to a proposed change, it should not be assumed that the proposed change is effective, and that the Employer has ‘done enough’.

Unless there is a special term in the contract the Employee's acceptance can take various forms, such as:

• Oral acknowledgement;

• Written acknowledgement; or

• Indicated by behaviour.

It is usually clear whether an Employee has accepted orally or by writing but the same cannot be said of acceptance by behaviour.

The courts and tribunals look for some action on the part of the Employee that is consistent only with acceptance – and it must be unequivocal.

As a result, doing nothing will rarely amount to acceptance but if the Employer changes the hours of work or the place of work, and the Employee works the new hours or goes to the new site, that will generally indicate acceptance.

The effect of imposing new terms

There are various remedies available to the Employee whose terms have been changed unilaterally. These remedies have different time limits, and the loss of a remedy does not mean that there has been an effective change of the contract.

1.       Damages for breach

The imposition of a new term will be a breach of contract and as such the Employee will be entitled to damages. The Employee has six years in which to bring a claim in the ordinary civil courts (five years in Scotland) and three months from termination of the contract if they wish to bring a claim in the employment tribunal (s.3 of the Employment Tribunals Act 1996).

Note that damages in employment tribunals are limited to £25,000 and that claims for damages in employment tribunals cannot be brought while the employment is still in existence

2.       Repudiation

The innocent party - in this instance the Employee - can accept a serious breach of contract by the Employer as an act of repudiation and terminate the contract, with or without notice (although by working a lengthy notice period the Employee may be deemed to have affirmed the breach). If the change is very minor the Employee may not be able to do this, but most imposed variations amount to repudiation. If the Employee wishes to terminate the contract they must do so "promptly".

There is no precise definition of "promptly", but the period is short. The employee may lose the right to terminate but can still claim damages.

3.       Unfair constructive dismissal

The new change may be so extreme that the Employee treats it as an actual termination of the contract by the Employer. The Employee will then have three months from termination in which to bring an unfair dismissal claim.

It is more likely that it will be a constructive dismissal. Constructive dismissal (s.95(c) of the Employment Rights Act 1996) arises from the same facts as repudiation: in that the Employer must have broken the contract in such a way that the Employee is justified at common law in leaving without notice.

Note that the Employee can end the contract with or without notice.

Again, the Employee has to act promptly to end the contract. Once it has ended the Employee has three months in which to bring the claim.

From this it is clear to see that an Employee may lose the right to repudiate or to claim unfair dismissal because they have not acted promptly enough after the Employer's breach, but this still does not mean that the terms have changed nor does it affect the Employee's right to claim damages.

4.       A claim for unpaid wages

Where wages are unilaterally reduced the Employee can bring a claim for unpaid wages under part 2 of the Employment Rights Act 1996.

Note that such a claim can be made during the existence of the contract.

5.       Redundancy

If the changes are such that the Employee’s job is seen to have disappeared they may, in addition to some of the above, be redundant.

Confused? Be in touch BEFORE you make any contractual changes.