Amending Terms and Conditions of Employment (March 2010)

The issue of re-negotiating a contract of employment is essentially a matter of basic contract law. 

The first principles of contract law prohibit any unilateral alteration of a contract, whether it is a contract of employment or otherwise.  Accordingly, in order to alter or vary the terms of a contract, there must be agreement on both sides. While a work practice may be changed by an employer unilaterally, a contractual term may not be altered without an employee's agreement. 

The change that most employers are looking to effect is a reduction in employees’ salaries.  This is not surprising given that this is the most significant employee related cost for businesses.  

While some contracts of employment contain a clause which expressly reserves the employer’s right to make amendments to an employee's contractual terms and conditions of employment, a variation clause must be exercised reasonably at all times.  Such a clause does not give an employer an absolute discretion to unilaterally reduce employees’ salaries and cannot be exercised in an oppressive manner. 

While employees’ agreement may be express or implied, tacit or by acquiescence, if the variation relates to a reduction in salary which is a fundamental contractual term, it would obviously be recommended that employees' agreement to such reduction should be express and in writing. 

Careful planning and advice should be sought before seeking to amended the terms and conditions of employment, particularly as regards salary.