Variation Clauses in Employment Contracts

Variation clauses can be effective in affording employers a degree of flexibility when changing employment contract terms and conditions.

Employers should, however, proceed with caution before taking steps to vary employment contract terms, both to avoid legal complaints and damaging workforce relations.

In this guide for employers, we explain the different types of variation clauses that are commonly included within contracts of employment and how these operate in practice. We also provide some best practice advice on the pitfalls to avoid when using these clauses.

 

What is a variation clause?

Durinf the course of an employment contract, it is likely that some of the terms and conditions under which an employee is required to work will inevitably change. Some contractual amendments are common in the workplace, such as an increase in salary or a promotion. In these circumstances, where the change is deemed positive by the employee, any contractual variations are likely to be mutually agreeable as between the employer and employee.

However, there are also scenarios in which changes may need to be made that are not necessarily in the employee’s favour, for example, variations to their working hours, a demotion or a change in their place of work.

The way in which any contractual changes can be made by an employer will depend on the express provisions within the employee’s contract of employment.

A variation clause is a clause set out in the employment contract, typically from the very start, that gives the employer the right to change certain working conditions without the need for further agreement. As these types of clauses give the employer the ability to amend the employee’s terms and conditions, variation clauses are also commonly referred to as flexibility clauses.

Provided the variation clause is reasonable in scope, and the decision to exercise the right to make certain amendments is reasonable in all the circumstances, this will give the employer the power to lawfully change the way in which an employee works. This will be the case, even if an employee objects to any proposed changes at the time that these are made. Usually, both parties need to agree to any contractual changes, but an employer can insist on a change if they have a legal right to do so by way of any express variation clause.

 

What are variation clauses used for?

Variation clauses can be used for all sorts of different reasons in the context of running a business and employing staff. They very often appear in the form of mobility clauses, where the employer may require an employee to relocate to a different branch, or even another county or country, to fulfil the operational needs of the business. It could also be where the business is struggling financially, and needs to be restructured or cutbacks need to be made.

Variation clauses are often used to reduce staff hours or pay, or to impose a temporary period of lay-off if there is a downturn in work to avoid redundancies. However, there must be a sound business reason for the insertion, and subsequent use, of the clause in question.

 

Are variation clauses legally binding?

Variation clauses, provided they are reasonable in scope, are legally binding. As with any contractual clause, they represent an agreement between the parties by which they are both bound, where any breach of that agreement can potentially sound in legal action.

However, employers can only use variation clauses to make reasonable changes in the workplace. For example, an employer cannot use a general right to change an employee’s working conditions to completely change their job role, or significantly reduce their hours and pay. This would not be classed as fair and, as such, it is unlikely that the tribunal or courts would seek to uphold this type of provision in the employer’s favour.

Equally, when using a variation clause, adequate notice must be given. For example, an employer cannot use a mobility clause to insist on an employee moving to another country to work on just one week’s notice. This again would not be classed as fair. This means that, even where an employment contract contains an acceptable variation clause, the employee must still be given adequate notice of any changes in the context of the proposed variation.

Finally, any variation clause must be exercised in a way which is consistent with the ongoing relationship of mutual trust and confidence between the employer and employee. As such, if the employee is required to uproot their entire life to relocate in the long-term, the employer may want to reconsider the reasonableness of this request, especially if the employee’s personal circumstances have changed since they signed their employment contract and agreed to the variation clause in the first place.

 

Examples of variation clauses

The way in which a variation clause should be drafted will very much depend on what changes the employer is trying to make provision for in advance. In theory, it is possible to include a general provision permitting the employer to make minor amends to any term and condition under which an employee works. For example: “[Company name] reserves the right to make any reasonable changes to your terms and conditions of employment on written notice. Any minor changes will take effect from the date of the notice or any other date as specified. In respect of more significant contractual changes, these will only be made after employee consultation and with at least one month’s written notice.”

Typically, however, a variation clause will be drafted more narrowly, specifying the term to which it applies, rather than a general provision allowing the employer to vary any term of the employment contract. For example: “Considering the responsibilities that you are required to undertake as part of your role, [the company name] may require you to perform your duties across the UK, at any of the company’s sites. Consequently, you agree to accept any change in assignment, on reasonable notice, that meets such needs.”

 

Use of variation clauses when changing contractual terms

Where a variation clause has been included within an employment contract from the outset, provided this is reasonable in scope, this will give the employer the right to amend the employee’s working conditions in accordance with that clause.

However, the employer must still provide their staff with notice in writing, informing them of the proposed changes and explaining that the employer has reserved the right to make such changes in accordance with the employee’s contract. The employer should also explain the reasons for the changes, as well as when these changes are due to take effect, providing adequate notice in the context of the proposals made.

What is classed as adequate notice will very much depend on the nature and permanency of the change. For example, if an employee is required to permanently relocate to another country, a period of 3 to 6 months may be needed, while a temporary move to another city or county could potentially be implemented with just one months notice.

 

Do you have to consult employees if there is a variation clause?

If a variation clause is already included within an employee’s contract of employment, and that term is reasonable in scope, unless expressly specified, then there is not usually any strict requirement to consult with the employee first. However, the employer must provide written notice of any change, and as a matter of best practice, may want to discuss any objections raised by an employee when it comes to the suggested variation.

In the absence of a variation clause, the situation gets far more tricky. In these circumstances, the employer will be required to get their staff to agree to any proposed change. This can be done individually or via collective agreement with employee representatives from, for example, trade unions or staff associations. In either case, this will require a period of consultation during which negotiations can take place.

The employer will need to send their staff a letter, explaining the reason behind the change and why they believe it is necessary for staff to agree to it. The employer will also need to invite each employee to discuss this with them in more detail, providing a reasonable timeframe in which staff can raise any objections. If agreement can be reached, the employer must then ask staff to confirm in writing that they have agreed to the changes. The employer must also make it clear when the agreed changes are due to take effect.

Once an employer has agreed on changes with their staff, they will need to update the terms of their employees contracts, or written statements of employment conditions, writing to their employees within a month to tell them exactly what has changed.

Where an employer has been unable to obtain the employee’s consent to a contractual variation, they may try to impose the change unilaterally. However, this approach is not generally advisable, as it could place the employer in breach of contract. Usually, only once the employer has gained the employee’s consent, and agreed the wording of the variation clause, will they be free to add this provision into their contract of employment.

 

What pitfalls should employers avoid around variation clauses?

Varying a contract of employment is fraught with practical and legal risks, where the presence of a variation clause does not necessarily guarantee that any proposed changes will go unchallenged by employees. Employers must therefore be confident that any changes to an employee’s working conditions fall within the scope of an express variation clause, and carefully consider the necessity for change where objections are raised. They must also keep employees informed at all times and provide adequate notice.

Additionally, employers should bear in mind that certain variation clauses, if the effect on the employee would be too detrimental or the provision is worded too widely, could be classed as unfair. While there is no set distinction as to what would make this type of clause unfair, some common sense should be applied here. For example, variation clauses should not be used to force the employee to accept reduced benefits. Equally, any general provision that permits the employer to vary any term whatsoever, may not be deemed reasonable.

If an employer makes a change to a contract of employment without getting the employee’s express agreement to this, even where a variation clause exists, an employee may:

• have the right to refuse to work under any new conditions
• say that they are working on any new terms under protest,treating the change as a breach of contract until the matter is resolved
• resign and submit a claim for constructive dismissal
• be able to take a case to an employment tribunal.

 

If an employee disagrees with any variation to their working conditions, but does not say or do anything, this may count as them agreeing to the changes. Otherwise, an employer may, as a last resort, terminate an employee’s contract and re-employ them on new terms and conditions. However, both options are risky. The first option could lead to employee resignations or, at the very least, disgruntled staff and a decline in productivity. The second option would require the employer to make staff redundant, following a redundancy procedure, leading to potential claims for breach of contract or unfair dismissal.

 

Best practice for employers

The following best practice advice when it comes to using variation clauses can help employers make the most of these contractual provisions while minimising any risk:

• Include any variation clause from the outset: seeking to incorporate a variation clause at a later date will require the employee’s agreement following a period of consultation;
• Do not draft too widely: it is important to be specific when using variation clauses, where the more specific the provision, the more likely this is to be deemed reasonable;
• There must be a sound business reason for the variation clause: any provision which gives the employer a discretion to change the employee’s working conditions must be justifiable in the context of the business in question;
• Always follow a fair process: even where a contract of employment contains a carefully drafted variation clause, it is always best to inform and consult to ensure that any employee affected by the proposed change has time to raise any reasonable objections;
• Always listen carefully to employee representations: by being open to alternative suggestions from employees or their representatives, this can often be a good way to find middle ground on which everyone can agree a suitable way forward;
• Always seek expert legal advice: varying an employee’s contract can be fraught with risk, so it is always best to explore all possible options first.

 

Variation clause FAQs

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Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.