How to Vary a Contract of Employment

Gareth Walls, partner and head of the A&L Goodbody Employment and Incentives team in Northern Ireland, explains what a contract of employment is, clarifies the particulars of employment, as introduced by the Employment Rights (Northern Ireland) Order 1996, and highlights the importance of identifying whether the proposed change is a material or immaterial variation. Gareth provides advice on consultation, timing, and alternative routes to the same goal, namely, varying the terms and conditions of the contract.

Transcript

So today we're going to talk about varying the contract of employment. And the first question in dealing with that really is understanding exactly what the contract is at first instance.

What is a Contract of Employment?

So the contract of employment in today’s employment world is a combination of a number of things. We have expressed terms, which are probably the most obvious and which first spring to mind. Then we have implied terms, which are less obvious but nevertheless critical. And of course, we have input from statute and regulative authority all of which needs to be born in mind.

Now, traditionally, the employment terms were embodied in a contract of employment and that was, traditionally, a 20 or 30 page document which incorporated both terms which were bespoke to the individual as well as policy, protocol, procedures, etc. Now, we moved away from that in 1996 with Employment Rights Act, with Employment Rights Order. And that legislation created effectively what we now know as the Particulars of Employment. The Particulars of Employment is, in theory, a short, three to four page document which then has the benefit of both an employment handbook, or indeed, nowadays, an intranet where most employers can go to find policies, procedures, etc.

Is it a Material Variation?

So it is important to bear in mind that when we're making variations, it is either one or indeed all of those documents, or those sources, that we need to consider when we're actually considering making changes to the contract of employment. So when we consider what a contract variation is in the first place, we need to consider whether it is a material variation or indeed an immaterial variation. Some people would think that any changes to pay would always be material, but in fact, one considers that every year, employees expect the contract to be breached. They expect their rate of pay to go up. They will not expect to have new terms and conditions issued and they will not consider that a change to the contract of employment. But nevertheless, it is, of course, a significant change to the Ts and Cs, but it is one which employees expect and want because it obviously adds to their benefit and doesn't create a detriment.

The converse would be fundamentally different. For example, if instead of a 2% pay raise in one year we were taking a 2% pay deduction from salary. Clearly, the employee would see that as a significant variation of the contract and would want consultation, etc., etc. So there are certain circumstances whenever the change may appear to be material and there's actually no need for consultation as such. And there will be other changes which we consider to be immaterial and you will need to consult. So there's no hard and fast rule for this. But what you do need to do is to consider what you intend to achieve, how you communicate that to the employee, and to decide what we actually need to do about it.

Timing and Consultation

So let's assume that it is a material change and we were to get it wrong, that can lead to both constructive unfair dismissal claims in most extreme circumstances, or in other situations, the employee will not leave the employment, but they will bring a breach of contract claim and an unlawful deductions claim, neither of which, obviously, we want to be bothered with.

And consequently, what we're trying to do is to make variations to the Ts and Cs which avoid any criticism, litigation, trade union involvement, or challenge. Frequently, the best way to do that is in and around annual pay review. As I've said, we know that the employee expect a pay increase. We know that that is a technical change to the Ts and Cs of employment but it is also a very good time to bring in new benefits, new policy changes, and indeed some aspects which may be perceived to be negative.

Whenever they are rolled up in the round with a pay increase, generally, it is acceptable, and if there are issues which need to be consulted upon or discussed, again, dealing those in the same iteration as a pay increase is, generally, the best time of year to do that because it breeds most goodwill with the employees. If, however, there are changes to be made and we don't have the benefit of a pay increase to do, there are other methodologies to use throughout the calendar year, or the employment year, within which to do it.

We may simply have to accept that there's a degree of consultation necessary. And if that is the case, then we can follow our own protocols and procedures in relation to consultation within the workplace. It may be that any changes can be done entirely within the employee consent because once appropriate communications have been entered into, the employee can accept that, “You know what? Actually, the employer needs to do this and it is in the best interest of me, the organization, etc.”

Another good opportunity in which to make these changes is at an employee promotion stage because not only will there be, for example, an expectation of greater salary, greater role, responsibilities. One can also expect restrictive covenants or enhanced confidentiality provisions, so again, promotion is a great opportunity in which to make those perceived negative changes to the Ts and Cs as well.

Alternative Avenues to Implement Change

If all those situations fail but there's still a need within the business to make change which may be perceived aggressive change, then there is another methodology available whereby communication is entered into, maybe consent is failing or is not going to be easily achieved, in which case, you may actually get into a compromise or settlement agreement whereby we buy out the employee from the old terms, or the old bonus scheme, or the old protocol, which is no longer attractive for the business but which the employee's going to hold on tight to.

So we might actually give them a lump sum, buy them out from that, and buy them into their new terms and conditions. So a compromise agreement can be used in that circumstance. It's not the end of employment. It's not a termination piece. It is potentially a breach of contract piece which the employer is compensating. So there are many routes to the same goal, some of them more aggressive than others.

There are also, of course, many other situations which change of contracts and variation in contracts are essential items. Insolvency situations and pre pack admins, there may be generally in redundancy scenarios where there's a compulsory redundancy of part of the workforce. The other employees that are left behind may still need changes made to their Ts and Cs. There may be changes necessary under TUPE with drag along and tag along rights and whether you can make those changes maybe two, three, four months or after the TUPE transfer point. And indeed whenever there are other aspects to the contract such as trade union recognition agreements or employee representative collective bargaining agreements, there are other issues engaged. We're not going to go into all of those today. That's not the focus of these videos, but what we do want to do is make sure that you are fully equipped to go through the documents which together make up the contract of employment and know what your obligations are when making changes to those contracts.