March 31, 2015

Variation Clause Could Not Be Relied on to Make Unilateral Changes

In Norman and others v National Audit Office UKEAT/0276/14, the Employment Appeal Tribunal (EAT) considered whether a variation clause could be relied on to make unilateral changes to terms and conditions of employment.

The National Audit Office (NAO) wished to reduce its employees’ paid leave and sick pay entitlements. When negotiations with the employees’ trade union broke down, it decided to impose the changes unilaterally. In doing so, it sought to rely on (i) a variation clause in the employees’ contracts stating that the employees’ terms and conditions were “subject to amendment”, and (ii) provisions in an HR manual which gave the NAO a unilateral right to vary employment terms where this was “essential to the operation” of NAO. The EAT upheld the employees’ claims that the NAO had acted in breach of contract. It found that the variation clause could not be relied on to effect a unilateral variation of terms as it came “nowhere near” the required standard of being “clear and unambiguous”; it merely established a potential for amendment. The provisions of the HR manual could also not be relied on because they did not have contractual effect and, even if they did, the changes were being introduced as a result of frustration with the union and not because they were “essential”.

Employers should bear in mind that while a “clear and unambiguous” amendment clause will be a good starting point, they must ensure that by relying on such a clause they do not breach the implied term of trust and confidence which could in itself give rise to claims.

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