Case update (3): Contracts of employment – power(less) to vary

settlement agreement - hand signing with penSummary: Can an employer rely on a variation clause in an employee’s contract of employment in order to introduce changes to employment terms on a unilateral basis i.e. without the employee’s agreement?

Not unless the clause setting out the right to unilaterally vary is sufficiently clear and in unambiguous terms and the employer exercises such right reasonably. Two cases this month, Hart v St Mary’s School (Colchester) Ltd and Norman and others v National Audit Office have dealt with this issue and in both cases the EAT has found the employers’ attempts to rely on their unilateral variation clause ineffective.

Facts:

1. Hart v St Mary’s School (Colchester) Ltd: Ms Hart, a part-time learning support teacher, worked three days a week. Following a timetable change she was required to work part time over five days. St Mary’s school relied on two clauses; one (clause 1.4) which stated that ‘the fractional part …may be subject to variation depending on the requirements of the School Timetable’ and the other stating that ‘the teacher should work all hours as may be necessary in the reasonable opinion of the principal for the proper performance of her duties’. Ms Hart brought a claim of unfair constructive dismissal.

The EAT agreed with Ms Hart that her employment contract did not contain all the contractual terms and that had been agreed with Mrs Hart, specifically that she would work three days a week. Furthermore, the phrase in clause 1.4, “may be subject to variation depending upon the requirements of the School Timetable” were not sufficiently clear when looked at in context. It permitted some variation after the initial notification of hours, but did not allow for substantial unilateral variation. The imposition of a five day working week was found, therefore, to be a repudiatory breach on the part of the employer.

2. Norman and others v National Audit Office: The employees worked for the National Audit Office (NAO) and were members of the Public and Commercial Services Union (PCS). Clause 2 of their offer letters stated that their terms and conditions were:

“…subject to amendment; any significant changes affecting staff in general will be notified by Management Circulars (MCs), Policy Circulars (PCs) or by General Orders (GOs), while changes affecting your particular terms and conditions will be notified separately to you”.

Also, sections of the HR manual were incorporated into the contracts, including one called “Settlement of disputes”:

“Wherever possible, management and the TUS will try to reach agreement before implementing any changes which affect staff. Changes to working practices or terms and conditions will not be implemented whilst negotiations are taking place, or whilst the issue is under referral to ACAS, unless management considers this essential to the operation of the NAO”.

The NAO wished to reduce leave and sick pay entitlements. When PCS refused to consent to the changes, the NAO implemented the changes anyway (relying on clause 2 in combination with “Settlement of disputes”) and informed the employees of the changes by letter and policy circular.

The employees brought Tribunal claims for breach of contract. They asserted that their existing terms and conditions remained unchanged. The Tribunal found in favour of the NAO, holding that clause 2 combined with the HR manual section on “Settlement of Disputes” gave the NAO the right of unilateral variation.

The employees appealed to the EAT which allowed the appeal. The EAT reinstated the employees’ original terms of employment. The EAT held that the changes were not incorporated into the employment contracts because the words “subject to amendment” came “nowhere near” the standard of being clear and unambiguous and established nothing more than the potential for amendment.

The EAT’s starting point was that, for a flexibility clause to be effective, it must clearly and unambiguously identify a right for the employer to vary the employment contract unilaterally. For example, this might involve specific wording such as “The employer reserves the right at any time during your employment to…” The EAT held that the clause 2 wording did not create a viable flexibility clause. Instead, it was found to be simply a general statement, which did not establish what the mechanism for amendment might be or the circumstances in which it might be invoked.

Similarly, the provision in the employer’s HR manual was found not to have been incorporated into employees’ contracts. The EAT further decided that, even if it had been incorporated, it would not have helped the NAO’s case, as the provision could only be relied upon in the very limited circumstances identified, which had not been shown to apply.

Implications: These two cases show that it is very difficult for employers to successfully rely on unilateral variation wording, especially where the changes are detrimental to employees. Merely stating that terms are “subject to variation” will not normally be sufficient. Overall, if an employer doesn’t think it has a clear right to vary terms and conditions unilaterally, and it cannot obtain its employees’ agreement to the changes, it should consider instead terminating and re-engaging its employees on the new terms.