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Contractual power allows employer to change employment terms without employees’ agreement

22 February 2010

The Employment Appeal Tribunal (EAT) has ruled in favour of Asda after employees challenged its right to make changes to their pay structure unilaterally.

The EAT found that wording in the employees’ contracts allowed Asda to make the changes without first securing the agreement of employees.

The general rule is that once an employment contract has been entered into, its terms cannot be varied by the employer unilaterally without first reaching an agreement to the change with the employee.

Some employers have tried to get around this by including clauses in their employment contracts which purport to give them the right to make changes without agreement. The Courts have previously interpreted such clauses very narrowly.

Asda had a staff handbook which contained both contractual terms and non-contractual policies.  The handbook stated that Asda,

“…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.”

Asda wished to amend the pay structure of a small proportion of its store staff to bring them into line with a more up-to-date structure which was adopted by the majority of store staff.

Following an extensive consultation process a minority of staff refused to agree to the change and so Asda introduced the new structure unilaterally, relying on the wording in the handbook.

Some of the employees claimed unlawful deduction from wages.

The EAT agreed with a tribunal that the clause in the handbook permitted Asda to introduce the new pay structure without obtaining the employees’ express consent. The wording in the handbook was wide enough to permit Asda to make the changes it sought.

Comment

Although many employers will no doubt regard this decision as welcome they should proceed with caution.

Firstly, any variation clause should be very clearly drafted to avoid arguments that it does not in fact give the employer the power to make the change they want to make; any ambiguity will be construed in an employee’s favour.

Secondly, the way in which the employer seeking to operate the variation clause must be reasonable.  If the employer acts arbitrarily or capriciously in doing so, for example by implementing change with very little notice, it could give rise to a claim that the implied term of trust and confidence had been breached by the employer’s actions; this would entitle the employee to resign and claim constructive dismissal.

In this case the EAT refused to consider any argument that the implied term of trust and confidence had been breached because the issue had not previously been argued in the tribunal. However, Asda had gone through a lengthy period of consultation with the employees before the change was implemented. It sought to ensure that no one suffered a reduction in their pay as a result of the change and more than half of its staff had agreed to the change. It was therefore unlikely that any such argument would have succeeded in any event.

Employers may wish to consider including a variation clause in their employment contracts but should be very careful about how they use them. Such a clause should not be considered a “get out of jail free card” but may be a helpful negotiating tool.

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Stuart Lawrenson

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