Case update (3): Contracts of employment – no oral variation is lawful

What do we already know?

We updated you in our July 2016 Newsletter Contracts of employment – watch out for inadvertent variations that the Court of Appeal held that an anti-oral variation clause does not prevent a valid variation by oral agreement (MWB Business Exchange Centres Ltd v Rock Advertising Ltd).

No oral modification clauses are common in agreements because:

• they prevent attempts, including abusive attempts, to undermine written agreements by informal means;
• they avoid disputes about whether a variation was intended and about its exact terms; and
• the measure of formality makes it easier for organisations to police their own internal rules restricting the authority to agree variations.

What’s new?

The Supreme Court has held that a no oral modification clause is legally effective, overturning the above Court of Appeal’s decision (Rock Advertising v MWB Business Exchange Centres, available here).

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.

This is a helpful clarification of the law in this area and gives real meaning and certainty to “no oral modification” clauses within contracts and supports their intention of avoiding inadvertent variations. This is an important reminder to follow formal procedures in a contract to effectively vary the terms of a deal, even if both parties are at the time happy to change the terms more informally.

In the employment context, if an employer and employee agree in a written employment contract that variations to the contract can only be made in writing, they cannot agree to vary that contract except in writing and only, usually, if signed.

If insisting that variations are in writing seems overly restrictive, there is always the option of following the organisation’s contractual change procedures to remove the “no oral modification” clause.  This would allow freedom, along with the accompanying uncertainty, to vary the terms of the deal with nothing more than a spoken agreement.