Relying on Express Contractual Powers to Change Employees’ Terms
Three recent cases in the UK have highlighted the issues employers need to consider when they want to use express provisions in employment contracts to change employees' terms and conditions.
The key questions are whether:
- The terms the employer wishes to change are contractual.
- The power to vary terms and conditions is part of the employee's contract.
- The employer's ability to change those terms is subject to any limitations, either in the variation clause or elsewhere.
In the case of Sparks v Department for Transport , the employer imposed a new absence management procedure after negotiations failed, with different trigger points for various warnings and ultimately dismissal. The employees complained.
The High Court considered that some aspects (guidance dealing with sick leave self-certification, occupational health referrals and so on) of the original staff handbook procedure were not contractual. However, the sickness provisions triggering warnings were clear, precise and potentially had serious consequences for employees, and were suitable for ‘incorporation’ into their employment contracts. They were contractual and the variation clause (in the staff handbook, not in the employees' contracts) was sufficiently clear and unambiguous to have contractual effect. So the employer could rely on the variation clause to change those provisions.
But there was a sting in the tail. The variation power stated that terms could not be changed "detrimentally" without employee and trade union consent. The court accepted that some of the employer’s changes (the new scheme’s lower thresholds and the first informal meeting becoming mandatory) were detrimental, judged against either the dictionary definition of ‘detriment’ (causing loss or damage, being prejudicial or harmful) or by what a reasonable worker might think. So the employer did not have a unilateral right to introduce the new rules, even though there was a power in the employees' contracts to change terms.
In Norman v National Audit Office , an employer imposed changes to sick pay and privilege leave days after unsuccessful negotiations. The terms stated that the claimant’s conditions of service were "subject to amendment" and that any significant changes would be notified by management, policy circulars or general orders, and changes to employees' particular terms notified separately.
The employment tribunal accepted the "subject to amendment" provision permitted the variation. However, the Employment Appeal Tribunal disagreed. This wording was not sufficiently clear and unambiguous to permit the changes the employer was trying to make. The references to amendment and notification raised the possibility of changes occurring, and how they would be communicated, but did not establish a clear power to change terms. The EAT also held the relevant provision was not incorporated into employees' contracts as it was in a part of the staff handbook which largely addressed collective bargaining issues and was not the “stuff of terms and conditions”.
In Hart v St Mary's School , a teacher's contract stated that her part time hours were "subject to variation". The school tried to change her three day week by spreading it over five days. The teacher resigned claiming constructive unfair dismissal. The EAT held the reference to variation was not sufficiently clear to constitute a unilateral variation power and decided the provision meant a variation could be at either party's request. So it could not be used to impose new hours on the employee. The employer needed a more clearly drafted provision.
These more recent decisions are in stark contrast to an earlier EAT decision in Bateman v Asda Stores  where a staff handbook provision was held to permit the introduction of new pay arrangements without employee consent. Not just the drafting but also the use of variation powers needs careful planning and consideration.
For an employer to be able to depend on a variation clause to change existing contractual matters:
- The provision needs to be clear and unambiguous.
- The variation clause should not have a qualification or limitation (for example, not allowing detrimental changes or requiring consultation before changes are made) but if it does, the employer needs to ensure it is satisfied.
- The employer should consider how the proposed change should be communicated to and consulted about with those affected. This will help protect the employer from claims that exercising the power without agreement is irrational, capricious, or a breach of the implied duty of trust and confidence.
This update was originally published online by People Management on 21 April 2015.