Variation Clause in Employment Contracts

Making a variation of an employment contract is fraught with risks. You need to consider things such as:

• Employee agreement.
• Necessity of change.

Failure to keep an employee informed, or failing to obtain their consent may result in claims of constructive dismissal and a costly employment tribunal.

To help you avoid this scenario, we’re going to breakdown everything you need to know right here.

What is a variation clause?

A variation clause in employment law is a section of an employment contract that allows you to make changes if there is a good reason for doing so.

If you want to make a change to an employee’s contract, you might want to use this type of clause.

But bear in mind, not all contracts have them. If you want to know how to change terms of employment without this.

For example, a legitimate reason might be that the business is struggling financially.

How do I add a variation of terms clause in an employment contract?

If this type of clause is in the initial employment contract, you should be able to proceed with the change to terms.

If the contract doesn’t have this clause, you can add one. To do this, you’ll need to obtain the employee’s consent.

The first step to gaining consent is to provide a letter of variation to the employment contract. From there you should arrange a meeting with the employee to discuss and negotiate terms.

The employee might want reassurance that the clause won’t allow you to change their contract dramatically.

If you’re planning on inserting a variation clause then you probably have a change in mind. Be as open as possible and give reassurances where you can. If it’ll help ease their fears, tell them about your planned change.

Once you’ve gained written consent and agreed the wording of the variation clause, you’re free to add it into the contract.                                                                                                              

When is a clause an unfair variation clause?

While there’s no set distinction as to what would make this type of clause unfair, there is some common sense guidance. For example, if the clause can be used to force the employee to accept reduced benefits.

It’s also likely to be unfair if it gives you the power to change elements of the contract that have previously been agreed at your discretion.

A unilateral variation of employment contract isn’t automatically unfair. For example, if the employee has breached the contract multiple times. In this scenario, you can potentially change their contract.

It’s also possible for a unilateral change to be agreed between both parties in advance, making it fair.

Outside of these given circumstances, a unilateral contract is likely to be unfair.

Breach of variation clause: employer and employee rights

So what are everyone’s rights when a change of terms is deemed unfair?

Well, a variation clause in employment contracts in the UK must comply with British employment law. This means that the employee may have the right to:

• Refuse to work under the new conditions.
• Say they’re working ‘under protest’.
• Resign, claiming constructive dismissal.
• Take the case to an employment tribunal.

If the employee decides to proceed to tribunal, you will have six weeks from receiving a copy of the claim to decide whether to make a counter-claim.

If the tribunal finds the variation of contract is unfair they may award compensation. This can cost you up to £25,000.

That’s why it’s vital to get the variation clause right first time.

Variation clause sample

Getting the clause right can be tricky. While we won’t provide you with a full employment contract with variation template right here, you can get a full documentation review and draft by contacting our documentation team.

If you need somewhere to start however, you can use the following clause:

“<Company name> reserves the right to make reasonable changes to your terms & conditions of employment.

If there are any minor changes, you will be notified in writing. These changes will take effect from the date of the notice or other date as specified.

Greater changes will be made only after consultation, and we will provide you with at least one month’s written notice.”

Expert support

If you need further support varying terms & conditions of a contract, speak to a Croner expert on 01455 858 132.