Case update (1): Contracts of employment – watch out for inadvertent variations

What do we already know?

We updated you in our May 2016 Newsletter Case update (3): Contracts of employment – Watch out for inadvertent variations on the case of Globe Motors, Inc and others v TRW Lucas Varity Electric Steering Limited and another.  In this case the Court of Appeal took the view that a contract containing an anti-oral variation clause (i.e. that any variation of it can only be in writing) can be varied by an oral agreement or the parties’ conduct.  However, the Court of Appeal’s comments on anti-oral variation clauses were outside of its decision (i.e. ‘obiter’) and therefore not strictly binding on other courts.

What’s new?

The Court of Appeal has confirmed its above comments that an anti-oral variation clauses does not prevent a valid variation by oral agreement in the case of MWB Business Exchange Centres Ltd v Rock Advertising Ltd available here.

This time the above comments made up part of the Court of Appeal’s decision (rather than being ‘obiter’ as described above in respect of Globe Motors).

Therefore we now have a firm decision that the terms of a contract can be varied orally or by conduct even if the contract says it has to be done in writing.

Implications:  Although this case does not specifically deal with HR issues, this is an important case for employers in relation to all their contracts, including employment contracts. In the employment context, even if an employer and employee agree in a written employment contract that variations to the contract can only be made in writing, such a clause may well be redundant as the parties can ultimately agree to discount this clause and verbally vary the contract anyway i.e. parties can agree at the outset in a contract that it can only be varied in a particular way but they are free to change their minds and if they do, the variation will be effective.

In practice an employer should be careful about what it says to its employees, or does, about the terms of their contracts as you may find you’re stuck with the outcome, even if you have an anti-oral variation clause that you thought you could rely on!

In any event, it is still advisable to include such anti-oral variation clauses in contracts.  This is because if there is an inadvertent variation of a contract by an informal oral communication and/or a course of conduct, it will be easier to persuade a court that the variation was not effective if the parties have previously agreed that a variation could only be achieved in a particular way; i.e. in writing and signed by authorised representatives.