Varying contracts of employment

Changes in a contract of employment generally occur due to either a change in the law or by agreement between you and your employee.

Where the law introduces changes (for example, extending statutory maternity leave), both you and your employee must comply with the law.

Such changes are not open to negotiation or consultation.

However, what is the position if you want to make changes to a contract of employment that are not related to changes in the law.

For example, what if the nature of the job changes so that the employee is doing a different job for you?

Can this be done, and if so, how?

In this guide we look at what you need to consider if you are looking to change (or vary) a contract of employment for any of your employees.

This includes your legal rights as a business

What is a variation clause?

Changes within a contract are called a ‘variation’.

A well-drafted contract usually includes a variation clause.

You will generally find this towards the end of the contractual document.

Our templates always contain a variation clause.

While Irish Law stipulates changes to a contract of employment can be made when all parties are in agreement (whether verbally or in writing), a variation clause can be added to the contractual terms to state that any changes made must be in writing and signed by all the parties involved.

This ensures that each party is protected from changes being made to the contract without express agreement, and more importantly, without that agreement in writing.

The phrasing looks like this:

“No variation of this agreement shall be effective unless it is in writing and signed by the parties.”

This establishes that there is only one agreement, these are its terms, and its terms cannot be varied unilaterally, even by accident.

You can also have a variation clause that allows certain terms to be changed unilaterally if you have good reason to do so (financial difficulties for instance).

Such a clause might be drafted as follows:

[Business name] reserves the right to make reasonable changes to your terms and conditions of employment.

If there are any minor changes you will be notified in writing. These changes will take effect from the date of the notice or other date as specified.

Greater changes will be made only after consultation, and we will provide you with at least one month’s written notice.”

So, can you change a contract?

In short, yes you can.

But you cannot do so unilaterally i.e. without prior agreement of the employee, unless your variation clause allows for such changes.

And where you make changes unilaterally you must have a good business reason for doing so.

Under the Terms of Employment (Information) Acts 1994-2014 you must provide the employee with written confirmation of the change within one month of the change.

You can find our letter template advising employees of a change here

What if your contracts don’t have a variation clause?

If you don’t have a variation clause in your contract, that doesn’t mean you can’t change anything.

Of course you can.

But you should make whatever changes you want very clear.

Where an employment contract does not have a variation clause which expressly enables you to vary terms, you have options.

You may either:

1. Obtain the employee’s express agreement to any change;
2. Terminate the employee’s employment on due notice and offer re-engagement on new terms; or
3. Attempt to impose the change unilaterally.

However, you need to be aware that any attempt to vary the terms of a contract unilaterally to the detriment of your employee can lead to:

1. A claim for damages for breach of contract;
2. A claim for constructive dismissal under the Unfair Dismissals Acts 1997-2007;
3. Where a reduction in pay is made, a claim for an unlawful deduction under the Payment of Wages Act 1991;
4. Industrial relations issues; and
5. Depending on the nature of the change, injunctive proceedings to prevent the unilateral variation

What are “the Terms” anyway?

You need to be careful here!

It is important that you understand what your employee’s terms of employment actually are so that you don’t make any changes inadvertently.

Because your employee’s terms and conditions of employment may be a mix of terms set out in their contract (express terms) and those that are implied.

So what are implied terms?

It can be difficult to provide for every eventuality in a work relationship when you initially draft a contract of employment.

That’s why certain terms of employment are implied into the contract.

However, it is not always clear if a particular term is implied.

There are four categories of implied terms in every contract of employment:

1. Terms implied by custom and practice
2. Terms implied by statute (right to redundancy, right not to be unfairly dismissed, right to notice, right not to be discriminated against, right to breaks, annual leave etc)
3. Terms implied by law (employers duty of care and employees duty of trust and confidence
4. Collective agreements in unionised employment

To find out more take a look at our guide to handling implied terms (coming soon)

Work practice or contractual term?

The question of what is a “work practice” and what is a contractual term is an important one.

And here’s why….

…because as an employer, you can change a work practice unilaterally.

For example, changing a break from 10am to 11am.

What is contractual, and not merely a work practice, may not be changed unilaterally.

Legally there is a distinction between contractual terms (the terms expressed in a contract of employment) and work practices.

Contractual terms include pay, hours of work, sick pay and pension scheme.

Not all contractual terms may be written in a contract of employment.

Some may be in your employee handbook or a collective agreement, for example.

Changes to these terms must be agreed between you and the employee.

Work practices on the other hand can include breaks and rostering.

You may provide details of these in your employee handbook.

You can change these work practices without your employee’s consent.

That’s because it’s considered reasonable for you to update work practices or processes to save money or increase efficiency.

However, there can still be risks attached to doing so and it is always advised to notify your employees of any changes.

You should set out what changes you are proposing and why you want to make them, so your employees understand why you feel the changes are needed.

And then there is custom…

There can be some overlap between work practice and custom where certain practices become an established custom within your business.

For something to become an established custom and practice it must be “reasonable, notorious (well known) and certain.”

An established custom can become an implied term of employment and as such contractual in nature.

For example, custom and practice might arise where you pay an annual bonus for many years.

If you suddenly fail to pay a bonus, having paid one for the past 5 years for example, there may be an expectation by your employees that a bonus is “certain” and therefore forms part of their contract.

What if an employee objects to a change?

This can be a difficult situation to manage.

If agreement cannot be reached and your employee refuses to accept a change to his/her contract of employment you have four main options:

1. Press on with the changes regardless

This can result in a constructive dismissal claim, where your employee states they had no choice but the resign because of the changes you made.

Therefore, you would need a very strong business case for the particular change to defend such a claim.

If your employee carries on working but objects to the change, they could bring a breach of contract claim for any losses they suffer as a result of the change.

2. Dismiss the employee and offer to rehire (reengage) them on the new terms

This is another situation where you would want to have a very strong business case for the initial dismissal, as once again you could be exposing yourself to the risk of an unfair dismissal claim.

If you’re considering this option, first think about:

• Whether you’ve done everything you can to reach agreement
• Whether the changes are absolutely necessary
• The risk of legal action

And of course, in any dismissal situation you need to be very careful in how you proceed.

You should:

• Follow a fair dismissal procedure
• Give the employee enough notice
• Offer the employee the right to appeal against their dismissal

Take a look at our guide to handling dismissals.

3. Make the employee redundant

You may decide to make the employee redundant.

You must prove there is a genuine need for redundancy and that you have followed fair procedures.

Otherwise, you are exposing yourself to an unfair dismissal claim.

And again you should be asking yourself the same questions as under the rehire option.

Our step by step guide to handling redundancies will be of great assistance to you here.

4. Accept the employee’s refusal and not make any changes

This is always an option, but it’s not necessarily an ideal solution as you risk having different employees on different terms and you’re not achieving your desired outcome.