The terms of an employment contract, like those of any other form of contract, can be changed if the parties agree. If a company wants to introduce a change that it currently has no express or implied power to make, it should first ask employees to agree to a change in the terms of their contract. There are two possible routes to achieve change by agreement: through bargaining with a recognised trade union or by obtaining individual employees' consent.
If a company recognises a trade union for collective bargaining, it may be able to secure the change it needs through negotiations with the union. The changes that the company agrees with the union will be binding on individual employees, provided that their contracts state that any collective agreements that the company may reach with the union from time to time will form part of their terms of employment. If an employee's contract contains an incorporation clause of this kind, any changes agreed with the union will form part of his or her contract, even if he or she is not a member of the union or is vehemently opposed to the changes. The way in which collective agreements become part of individual employees' contract terms is explained in more detail at elsewhere in this Guide (incorporation ).
The situation is different if employees' contracts do not incorporate any collective agreements, or if they do not incorporate the agreement on change that has been reached. A contract of employment is a personal contract between the individual employee and the employer. Therefore, if there is no incorporation, an employee will not usually be bound by changes negotiated and accepted by a third party such as a union. The only exception to this is where the employee has agreed that the union can act as his or her agent in the negotiations. An agency agreement of this kind is very rare, and it cannot be assumed that an employee has appointed the union to be his or her agent merely because the employee is a member of the union. In practice, however, an employee is unlikely to challenge a change that has been agreed by his or her union, even if the agreement is not binding on the employee in strict legal terms.
If a company does not recognise a trade union, or if it recognises a union but cannot secure the union's agreement to the change it wants, it can approach employees individually for their agreement to the change. Once the end of the collective route has been reached, however, a company may well need to approach employees individually, in order to put itself in a position to defend any subsequent unfair dismissal claims, as explained elsewhere in this Guide (avoiding unfair dismissal). In practice, employees may be prepared to agree to adverse changes if the company is able to offer them some other benefit, such as a pay increase, in compensation.
If an employee agrees to a change to his or her contract, it is advisable to get the employee to confirm that agreement in writing.
It is a common misconception that an employer can alter employees' contractual terms simply by giving them a 'notice to vary' their contracts. In fact, if the employees have not agreed to the variation, a notice of this type does not alter their contract terms, but rather gives them advance warning that the company intends to breach their contracts, giving them the option of making the legal claims (potential legal claims ). Likewise, the mere fact that a company has issued employees with a written statement confirming that their contract terms have changed does not have the effect of altering those terms, if the employees have not in fact agreed to the change.
In practice, however, employees who are issued with a 'notice to vary', or a written statement about a change, may be prepared to go along with the change and by so doing will have implied that they have agreed to it. Nevertheless, companies that are contemplating this course of action should contact us for advice.