Changing employment contracts – consult the employee

by Stephanie Zillman29 Mar 2012

Some HR managers may think that making minor contract variations is a quick and easy fix to cut costs, but significant legal implications may be the result if employees aren’t consulted.

Failing to obtain an employee’s consent when implementing workplace changes – to everything from pay and promotion to duties and working hours – can actually mean you are breaching the contract and exposing yourself to litigation.

Implementing contract variations is only acceptable when the employee provides absolute consent, Joydeep Hor from workplace law firm People & Culture Strategies (PCS) said. “Many employers are using contract variations, such as reduced hours or salaries, in place of redundancies as they try to bring further flexibility to their workplace. However, if employers step too far, it’s possible an employee could claim a fundamental breach of their contract and lodge an adverse action claim suing their employer for damages,” he said.

According to Hor, while a certain amount of variation is permitted in most contracts, any variation above 20% of an employee’s normal duties is risky. However, exactly how much variation is permitted within an employee’s contract is ‘a very grey area’. 

Most contracts include a clause allowing employers to vary employees’ duties from time to time in a subtle way.  For example, photocopying documents may not explicitly be in the job description, but it’s not usually recognised as an unfair variation. Just because something isn’t a core part of a job description doesn’t mean it amounts to a ‘fundamental breach’ of the terms and conditions of the contract. But a change in senior reporting structure, for example, can constitute an unfair variation, in which case the employee, having not given their consent, can deem it a repudiation of their contract and cause for litigation.

A common mistake HR makes in contract variations is not appreciating the significance of change from an employee’s point of view. Provisions in the Fair Work Act (FWA) have opened the door for employees to challenge any variations made to the terms and conditions of employment they claim are to their detriment. Under the FWA, employees must demonstrate a breach of a fundamental workplace right in order to make a claim, but this can be interpreted creatively by courts, which has opened the door for a significant increase in employee claims.

Points to remember when changing employment contracts:

  • Ensure all employment contracts and policies are detailed, accurate and provide the necessary flexibility for the employer.
  • Document all conversations, changes and agreements.  If a deal is done ‘on a handshake’ and variations aren’t recorded properly in writing, they could end up open to debate.
  • Don’t just use standard templates for employment contracts. Look at what’s cutting-edge and what other employers are doing successfully to help structure their employee base.

Transparency, proper communication and giving people time to think things through is important. In addition, employers should keep an open mind to feedback and be prepared to negotiate changes.


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