The Employment Law Blog

Employment contracts: All tied up?

HR professionals will be familiar with the situation where new contracts of employment are sent out to employees which are never returned. This creates difficulties when the employer wants to rely on any changes in the new contract.

The question then becomes: is the employee bound by the new terms?

Contract law requires any agreed variation to a contract to be supported by “consideration”. An employer must, therefore, establish that there has been some benefit that has passed to the employee in consideration for a change which has been made to their contract. If the change has elements that are to the employee’s advantage, such as a pay rise or promotion that will be the consideration. It will be harder to establish consideration where the change is all to the employee’s detriment.

There are numerous examples in case law where employers have successfully argued that the employee’s continued employment provides the necessary consideration in the absence of a signed contract. This is however only likely to be the case where the changes to the contract have an immediate effect on the employee’s employment and the employee has not clearly objected to the terms of the new contract. Employers should not therefore assume that silence is sufficient to indicate implied agreement if the change does not have an immediate impact on the employee. Such changes will often relate to rights and obligations connected with the termination of employment, such as notice periods and restrictive covenants which can be of critical importance to employers but only need to be relied on later in the employment relationship. A mobility clause also falls into this category.

This was the situation that gave rise to the recent case of Wess v Science Museum Group. Originally Ms Wess had been entitled to 6 months’ notice of termination. She was sent a new contract which purported to reduce her notice entitlement to 12 weeks. She never signed the contract but neither did she say that she objected to the new terms. She continued to work for her employer for a further 9 years until her dismissal on 6 weeks’ notice. The Employment Appeal Tribunal found that Ms Wess had given implied agreement to a variation of her contract despite not signing it. On the face of it this seems to contradict previous cases as the new notice provision did not take effect immediately. This situation was different, however, because the employer in this case had made it plain that future employment was offered on the basis of an entirely new contract and therefore by continuing to work for the employer Ms Wess was deemed to have agreed to the terms of the new contract.

The recent case of Re-use Collections Limited v Sendall & May Glass Recycling Ltd also explored similar issues. This time the case was decided in favour of the employee. The High Court refused to enforce restrictive covenants contained in a new contract even though Mr Sendall had signed it. The court used contract law to decide that the new terms were not binding because the employee had not received “some real monetary or other benefit” for the variation of contract. His continued employment was not a benefit since there had been no suggestion he would have been dismissed if he refused to sign up and therefore the case differed to the case of Wess.

These recent cases act as a reminder to employers that they should not only require new contracts to be signed but if they want to ensure that the new terms are binding they should also adopt a cautious approach and allot some form of consideration to the change such as an annual pay rise, one off bonus, new fringe benefit or a promotion.

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