Changing employment contracts and Settlement Agreements

Settlement agreements are often used during proposed or forced changes to contracts.

In tough economic times it is common for employees to stay in jobs for longer than they otherwise might. The rights that you build up as an employee (such as the right to redundancy pay and unfair dismissal rights) are valuable and people are reluctant to move employment and risk losing their job without these rights. At the same time, employers are keen to cut costs wherever possible. We have seen an increase in employers requesting to change contractual terms for their employees to try to achieve this.

What rights does an employee have to resist an employer changing their terms and conditions of employment? Broadly it depends on whether the change is allowed under the current contract or not.

Changes authorised by the contract


A contract may state that the employer has a general power to vary contractual terms or it might provide a specific right to vary the particular term in questions. Alternatively, the existing term may be broad enough to accommodate the change in question. Look out for phrases like ‘at the employer’s absolute discretion’. However, there is no guarantee that an employer can rely on these clauses so generally, even if a contract contains these types of clauses, an employer would be wise to obtain and employee’s consent to change their terms.

Changes not authorised by the contract


Where a contract does not authorise changes, an employer has three options:

 
  • Try and get the employee to agree to the changes;

  • Make the changes in practice and try and argue that an employee has accepted the change by continuing to work under the terms; or

  • Terminate an employee’s contract and re-employ them under new terms.

Any employer who tries to unilaterally change the terms and conditions of employment will be in breach of contract and the employee can take the following action:

 
  • Accept the breach and work under the new terms;

  • Work under the new terms but under protest and then bring a claim for breach of contract;

  • If the breach is serious enough, claim constructive dismissal; or

  • If possible, refuse to work under the new terms.

This type of action may well result in the employer offering the employee the chance to leave their job under the terms of a Settlement Agreement.

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