Two recent cases remind us that attempts to reserve a right to unilaterally vary an employment contract will be subject to careful scrutiny and that a widely-drafted general right to vary the contract is highly unlikely to be enforceable ((1) Sparks and another v Department for Transport (High Court) and (2) Norman and others v National Audit Office (EAT)).
Generally, changes to employment contracts must be agreed by both employer and employee. However, employers often seek to reserve the right to vary the terms of the contract unilaterally i.e. without the employee's consent. The difficulty for employers is that the Courts and Tribunals are often reluctant to enforce such clauses, save where they are sufficiently clear and unambiguous. In the first case below, the employer sought to rely on a narrow provision which permitted unilateral variation provided certain conditions had been met (i.e. following consultation and where the change was not detrimental). In the second case below, the employer sought to rely on a general provision which provided that employees' terms and conditions were "subject to amendment".
Sparks and another v Department for Transport (High Court)
In this case, the High Court considered whether the Department for Transport (DfT) was entitled to unilaterally change the terms of its staff handbook which had been, in part, incorporated into its employees' contracts of employment.
The staff handbook stated the number of days of absence required before a formal absence management process was triggered (which ranged from eight to 21 days, dependant on the department). The DfT wished to reduce the trigger point to 5 days.
However, the handbook stated that its terms were to be incorporated into the employment contracts and that the DfT had to consult with staff before making changes to employee's contractual terms. If that process failed (as it did here) the changes could only be made if they were not detrimental to staff. In this case, the DfT consulted with staff about the proposed changes to the absence management process. After the consultation process failed, they proceeded to unilaterally change the procedure, reducing the trigger point to five days.
The High Court held that the DfT was not entitled to unilaterally change the terms of the handbook as the current absence management procedure was incorporated into the employees' contracts of employment. Therefore, the DfT could only make changes to it if, in accordance with the handbook's variation provisions, the changes were not detrimental. The Court held that the change was detrimental as employees could now take fewer absences before the formal absence management process was triggered and they could face the possibility of sanctions. In addition, employees would likely not take absences that they were entitled to, in order to avoid triggering the absence management procedures. The court made a declaration reinstating the employees' original contractual terms.
Separately, the High Court also offered some useful guidance on the kinds of terms in staff handbooks that are not likely to be contractual. For example, a requirement that sick employees must inform their line manager of their absence by 10.00am or a requirement for line managers to keep any information about illnesses or medical conditions of staff confidential and to forward immediately any sickness certificates to Human Resources. This is helpful as employers have greater latitude to vary non-contractual provisions.
Norman and others v National Audit Office (EAT)
In this case, the EAT considered whether the National Audit Office (NAO) was entitled to rely on a term which stated that employees' terms and conditions were "subject to amendment". This was supported by a section within the NAO's staff handbook entitled "Settlement of Disputes", which provided that: (i) the NAO would consult with the trade unions and try to reach agreement before imposing any changes affecting staff; and (ii) changes would not be imposed during such negotiations unless "essential to the operation of the NAO". This section of the staff handbook was expressed to be contractual.
The NAO wished to reduce employees' entitlements to privilege leave and paid sick leave. As with the case above, the NAO consulted with the relevant trade union with a view to seeking agreement to the proposed changes. When that consultation failed, the NAO proceeded to unilaterally change the entitlements, in reliance on the general variation right.
The employees brought claims for breach of contract in the Employment Tribunal, arguing that the NAO was not entitled to unilaterally vary their contracts. The Tribunal found in favour of the NAO, holding that the general variation wording, in combination with the "Settlement of Disputes" section of the staff handbook, endowed the NAO with the right of unilateral variation. The employees appealed.
The EAT overturned the decision of the Tribunal, holding that:
- the general variation wording was "nowhere near" the necessary standard to permit unilateral changes. Nor was it relevant that the wording talked about changes being "notified" to the employees – this was of no significance and went no further to establishing a right to unilaterally vary the contract; and
- the "Settlement of Disputes" section of the staff handbook was not incorporated into the employment contract as it was not a particular condition of service. Instead, it related to the collective bargaining structure and machinery. Even if it was incorporated, on the facts, it could not be said that the reduced leave and pay entitlements were "essential to the operation of the NAO".
These cases remind us that any attempt to reserve the right to unilaterally vary an employment contract will be carefully scrutinised by the Courts. A widely-drafted general right to vary the contract is highly unlikely to be enforceable as it will fail to meet the required standard. An example of a general right of variation which was upheld by the EAT can be seen in the case of Bateman and others v Asda Stores (2010). In that case, the staff handbook contained contractual provisions including a general right of variation expressed as follows: "The company reserves the right to review, revise, amend or replace the content of this handbook and introduce new policies from time to time to reflect the changing needs of the business and to comply with new legislation". If you wish to reserve a general right to make variations to the contract, then any such provision should be drafted in a similarly clear manner. Another strategy would be to keep as much detail as possible in the non-contractual section of the staff handbook, which will be easier to change.