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Variation of employment contracts

If employers want to vary a contract of employment they must first make sure that they have a very clear right to do so.

In Norman and Others v National Audit Office UKEAT/0276/14/BA HHJ Hand QC, sitting in the EAT with members, was asked to consider test cases brought by employees of the National Audit Office arising out of imposed changes to their terms and conditions of employment relating to sick pay and “privilege days” (a type of holiday).

All too often employees will be under the misapprehension that, if they have a detrimental amendment to the terms of their employment imposed upon them, their only routes forward are: to lodge a grievance and then adopt the nuclear option of resignation if they do not accept their employer’s response; or, simply to march on, thankful that they still have a job. In Norman the National Audit Office (“NAO”) sought to impose changes, which were in reality to the detriment of the affected employees, and their advisers astutely realised that there is an alternative and little used option as a result of sections 4(1) and 11(2)(b) of the ERA 1996:

Section 4 - Statement of changes

(1) If, after the material date, there is a change in any of the matters particulars of which are required by sections 1 to 3 to be included or referred to in a statement under section 1, the employer shall give to the employee a written statement containing particulars of the change.

Section 11 – References to Employment Tribunal

(2)(b) [Where] a question arises as to the particulars which ought to have been included or referred to in the statement so as to comply with the requirements of this Part, either the employer or the employee may require the question to be referred to and determined by an employment tribunal.

Within employees’ letters of appointment before they started work with the NAO there was a statement which read:

“[Clause 2]: The following paragraphs summarise the main current terms and conditions of your employment in the NAO.  Detailed particulars of conditions of service are to be found in the relevant sections of the HR Manual of the NAO.  They are subject to amendment [emphasis added]; any significant changes affecting staff in general will be notified by Management Circulars (MCs), Policy Circulars (PCs) or by General Orders (GOs), while changes affecting your particular terms and conditions will be notified separately to you.

The NAO sought to rely upon this clause when it introduced changes to employees’ terms and conditions relating to holiday and sick pay. However the EAT was of the opinion that Clause 2 “comes nowhere near being clear and unambiguous” as required in law, before then exercising its power under s.12(2)(c) ERA 1996 to substitute the wording in the letters of amendments sent out by the NAO (i.e. The s.4 ERA 1996 amendments) the original wording and entitlement that existed before the attempted amendment.

The EAT appears to have derived the law applied by it from some of the cases cited (although none were expressly referred to in the Conclusion), including in particular from paragraph 31 of the Judgment of Lord Woolfe in Wandsworth London Borough Council v D’Silva [1998] IRLR 193 where he said:

“The general position is that contracts of employment can only be varied by agreement.  However, in the employment field an employer or for that matter an employee can reserve the ability to change a particular aspect of the contract unilaterally by notifying the other party as part of the contract that this is the situation.  However, clear language is required to reserve to one party an unusual power of this sort.  In addition, the court is unlikely to favour an interpretation which does more than enable a party to vary contractual provisions with which that party is required to comply.  If, therefore, the provisions of the code which the council were seeking to amend in this case were of a contractual nature, then they could well be capable of unilateral variation as the counsel contends.  In relation to the provisions as to appeals the position would be likely to be different.  To apply a power of unilateral variation to the rights which an employee is given under this part of the code could produce an unreasonable result and the courts in construing a contract of employment will seek to avoid such a result.”

Given the apparent emphasis by the appellate courts on seeking to construe unilateral rights to vary contracts of employment by an employer so as to avoid an "unreasonable result", it must now be clear to advisers that the majority of variation clauses which are included within contracts of employment are either vulnerable to attack if relied upon, or simply not worth the paper that they are written on.