Why are Variation Clauses Important in Employment Agreements?

Over the life of an employment contract, it’s likely some of the terms of employment will change. Some amends are common, such as a salary rise or promotion. And they’re likely to be mutually agreeable. 

However, it’s also possible you may need less favourable amends. As a result of the coronavirus pandemic, for example, you may feel you need to suddenly make changes for the good of your business.

However, you must approach this carefully due to UK employment laws. For immediate guidance and support, call us on 0800 028 2420 - we’re here to help.

You can also read this guide, which explores the nature of this clause and whether your business should use it. 

What is a variation clause in employment contracts?

A variation of employment contract may contain a provision expressly providing you with the power to amend the terms of a contract. 

Contain clauses of this nature within the contract, should you seek to use it now.  

You may find yourself wanting (or needing) to make changes you know are likely to be unpopular and difficult to get staff to agree to. 

Under variation clause employment law, an employment tribunal is more likely to allow a variation of an employment contract where the term in use to achieve this specifies which terms it applies to (rather than a general provision allowing the employer to vary any term).

That’s why it’s important to be specific when putting together a variation of terms clause in an employment contract.

Variation clause samples

As outlined above, the strongest employment contract variation clause example will aim to specify exactly what the company reserves the right to change within it. 

For instance, in times of business downturn you may wish to reserve the right to:

• Reduce staff hours.
• Reduce pay.
• Impose a period of lay-off on your staff (changing their contract so they receive no work or pay for a temporary period of time if the alternative is redundancy). 

A starting point could be as outlined below. You can consider this a employment contract variation template: 

“<Company name> reserves the right to make reasonable changes to your terms & conditions of employment.

If there are any minor changes, you will be notified in writing. These changes will take effect from the date of the notice or other date as specified.

Greater changes will be made only after consultation, and we will provide you with at least one month’s written notice.”

Depending on the severity of the change, you should consider making such a term as specific as possible. 

So, for example, if you want to implement a lay-off clause, you could amend it as follows:

“<Company name> reserves the right to make reasonable changes to your terms & conditions of employment.

This involves placing staff on a period of lay-off without pay if there is a downturn in work, where the alternative is redundancy.”

When could there be an unfair variation clause?

While there’s no set distinction as to what would make this type of clause unfair, you should use your common sense. 

For example, tribunals may not look kindly on a clause if it expects staff to accept reduced benefits for no good reason.

It’s also likely to be unfair if it gives you the power to change elements of the contract that have previously been agreed at your discretion.

Breach of variation clause—employer and employee rights

So, what are everyone’s rights when a change of terms is unfair? Well, a variation clause in employment contracts UK must comply with British employment law. 

This means the employee may have the right to:

• Refuse to work under the new conditions.
• Say they’re working ‘under protest’.
• Resign, claiming constructive dismissal.
• Take the case to an employment tribunal.

If the employee decides to proceed to tribunal, you will have six weeks from receiving a copy of the claim to decide whether to make a counter-claim.

If the tribunal finds the variation of contract is unfair they may award compensation. This can cost you up to £25,000.

That’s why it’s vital to get the variation clause right first time.

Letter of variation to employment contract

If you have a fair term to vary contracts already within an employment contract, you should be able to go ahead and do this with no issues. 

Send a letter should to your staff informing them that you reserve the right to make this change, when this change is due to take effect and the reasons for it.

In the absence of a variation clause, the situation gets tricky. Here, the first thing you’re going to have to do is to try and get your staff to agree to the change. 

You’ll need to send them a letter, this time explaining the reason behind this change and why you believe it’s necessary for staff to agree to it. You’ll also need to invite them to discuss this with you in more detail.

Following those steps, distribute to staff a letter confirming the changes and when they’re going to take effect. 

And then you can ask them to sign and return a copy to you. This’ll confirm they have agreed to the changes.

Unilateral variation of employment contract

Where you are unable to obtain the employee's consent to a contractual variation you may try to impose the change unilaterally. 

This approach is not generally advisable as it could place you in breach of contract.

That said, a unilateral variation of employment contract isn’t automatically unfair. For example, if the employee has breached the contract multiple times. In this scenario, you can potentially change their contract.

It’s also possible to agree a unilateral change between both parties in advance, making it fair.

Outside of these given circumstances, a unilateral contract is likely to be unfair.

Need our help?

If you’re looking for answers to any of your contractual questions, get in touch. We’re here to help: 0800 028 2420.