An employment contract is a legal agreement between an employer company and an individual employee. It establishes the terms of employment such as the representations made by the parties, their liabilities under the contract, and the duration of the employment. These terms can indeed be changed in the future, but only under certain circumstances which are discussed in this article.
What is the nature of the proposed change?
Implied duties of the employer
One of the implied terms in an employment contract is that neither the employer nor the employee will act in a way to unreasonably damage the duty of mutual trust and confidence that exists between them. Any proposed change to the terms of an employment contract must ensure this duty is not breached. Moreover, in some cases an employer owes employees the implied duty to act responsibly and in good faith. This duty too must not be breached by the proposed change.
Any proposed change must be reasonable; it must not breach any of the implied duties owed to the employee discussed above nor must they make the employment contract impossible to be performed. If a change requires something unreasonable of the employee, it could amount to constructive dismissal i.e. a situation where an employee feels that they have no choice but to resign from the job because their employer’s conduct has created a difficult work environment. The employer's conduct could thus qualify as a repudiatory breach of the employment contract, and the employee could bring a claim for unfair dismissal.
A penalty clause is an express contractual term which imposes a duty on one party (defaulting party) to pay a harsh financial penalty to the other party (aggrieved party) as punishment for breaching the contract. Penalty clauses are generally unenforceable in English law, so the proposed change to the employment contract must not amount to a penalty clause.
What is the effect of the proposed change?
You must be mindful of equality laws when making a change to an employment contract, lest you fall foul of the Equality Act 2010 and become liable for a discrimination claim. Even if the change doesn’t seem discriminatory at the face of it, it is important to consider who it will affect. Are employees with certain characteristics more likely to be negatively impacted by the change? Is a certain category of employee going to be disproportionately affected by the proposed change? If yes, then the change is likely to be unlawful.
The law protects employees by offering them certain statutory rights such as a minimum wage and maximum working hours. It is crucial that the proposed change does not fall below the minimum standards expected of all employers, or you will be in breach of the law. For instance, an employment contract cannot exclude the Employment Rights Act 1996 or the Flexible Work Regulations 2014. It is valuable to get legal counsel from an employment law expert before enacting a change, so you can be sure the employment contract remains legally compliant.
To be lawful, the change must be in accordance with relevant laws in the country otherwise the changed contract term will be unenforceable on the grounds of illegality. You should note that where a certain clause conflicts with a certain piece of legislation, the law will prevail and any good employment contract will take this into account through a severance clause.
What are the conditions surrounding the proposed change?
If the employer’s business has recently changed hands and the employee has been transferred to a new employer, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply. Under TUPE, you cannot change a term of the employment contract if that change is directly related to the transfer. This rule is meant to protect the contractual rights of employees even when they are transferred.
If there is a variation clause (aka a “flexibility term”) in the employment contract which you intend to use to make the proposed change, it is worth looking at the actual construction of that clause. If the clause is worded vaguely or suggests that the employer has the right to make unilateral changes, you need to be careful. This is because variations cannot be relied on to make unreasonable changes or for an employer to act unreasonably, especially if the change or their actions will amount to a breach of the implied term of trust and confidence discussed above.
When hiring, it's important to have legally sound employment contracts in place to protect your company and employees. With Legislate, you can easily tailor lawyer approved agreements to suit your needs, and easily extract relevant data from these agreements. Plus, our platform allows for electronic signing, making the contract process more efficient for both you and your employees. Book a demo or sign up today.
The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.