General flexibility clause could not be relied on to vary employment terms

The EAT has overruled a tribunal decision that the National Audit Office was entitled to rely on a general right to vary clause to vary employment terms without their consent.  The decision is a useful reminder that employers will generally find it difficult to rely on a general right to vary clause. (Norman and others v National Audit Office UKEAT/0276/14.)

 

 

Background

As a general rule, changes to any term of an employment contract must be mutually agreed. Any right of unilateral variation must be stated in clear and unambiguous terms. Although employers often reserve a general right to vary the contract unilaterally, tribunals will rarely enforce such clauses. However, in Bateman and others v Asda Stores Ltd UKEAT/0221/09, Asda successfully relied upon a general right to vary pay terms. It was significant that Asda had undertaken extensive consultation with its employees prior to introducing the change and only one of the six employees was financially worse off because of the variation. The decision may well have been decided differently if Asda had chosen to introduce a more radical change to the employees' detriment.

Facts

The appellants worked for the National Audit Office (NAO) and were members of the Public and Commercial Services Union (PCS). Clause 2 of the appellants' offer letters stated that:

 

"The following paragraphs summarise the main current terms and conditions of your employment in the NAO. Detailed particulars of conditions of service are to be found in the relevant sections of the HR manual of the NAO. They are subject to amendment; any significant changes affecting staff in general will be notified by Management Circulars (MCs), Policy Circulars (PCs) or by General Orders (GOs), while changes affecting your particular terms and conditions will be notified separately to you".

The pertinent section was the statement that the appellants' terms and conditions were "subject to amendment" and the notification details that followed it.

By virtue of clause 2, certain sections of the HR manual were incorporated into the contracts, including one titled "Settlement of disputes". That section stated:

 

"Wherever possible, management and the TUS will try to reach agreement before implementing any changes which affect staff. Changes to working practices or terms and conditions will not be implemented whilst negotiations are taking place, or whilst the issue is under referral to ACAS, unless management considers this essential to the operation of the NAO".

Another section dealt with the appellants' entitlements to privilege leave (a type of additional leave) and sick pay. The NAO wished to reduce privilege leave from two and a half to two days. It also wanted to reduce paid sick leave from six months' full pay followed by six months' half pay to five months' full pay followed by five months' half pay (subject to a maximum of ten months' pay for sickness absence in any four-year period).

 

The NAO sought to agree changes to the appellants' employment contracts with PCS. When PCS refused to consent to the changes, the NAO implemented the changes without union support and informed the appellants of the changes by letter and policy circular. In doing so, the NAO sought to rely on what it regarded as a general flexibility clause in clause 2 in combination with the "Settlement of disputes" section of the HR manual.

The appellants disputed that the NAO had the right to unilaterally vary their employment contracts. They brought claims in the tribunal for breach of contract, seeking to assert that their existing terms and conditions remained unchanged. The tribunal found in favour of the NAO, holding that the combination of clause 2 and the "Settlement of Disputes" section of the HR manual gave the NAO the right of unilateral variation.

The appellants appealed to the EAT.

Decision

The EAT allowed the appeal and reinstated the employees' original terms of employment.

 

The wording in clause 2 was not clear and unambiguous

The EAT found that the changes were not incorporated into the employment contracts because "subject to amendment" came "nowhere near" the standard of being clear and unambiguous and established nothing more than the potential for amendment. Further, the notification details in clause 2 only established the need for any such amendments to be notified. No mechanism for amendment was specified.

Furthermore, the word "notify" had no particular significance and did not establish the right for an employer to make unilateral changes. It did no more than stipulate that the employee would be informed of any changes. Nor was the act of notification itself significant, it was to be expected that an employer would notify an employee of any changes, especially where the changes are agreed on a collective basis.

The EAT held that it was not conclusive that the NAO did not reserve to itself the right to amend. Although in Bateman the words "the company reserves the right to review, revise, amend or replace the content of this handbook" were decisive, the lack of such wording was not determinative.

The "Settlement of Disputes" section of the HR manual was not incorporated into the employment contracts

The EAT found that the "Settlement of Disputes" section of the HR manual was not capable of being incorporated into the contracts because it was not a particular of conditions of service. Some parts of the HR manual did relate to the particulars of service, but this particular section set out the details of collective bargaining structure and machinery which is not the stuff of terms and conditions of the contracts of employment.

Comment

Any purported right to vary clause will be scrutinised carefully by the courts. It is well-known that a right of unilateral variation must be set out in clear and unambiguous terms. This case illustrates that terms and conditions stated to be "subject to amendment" is unlikely to suffice and nor will a statement that employees will be notified of any change.

In practice, employers are unlikely to seek to rely on general flexibility clauses to make changes to the employee's detriment. General flexibility clauses tend to be used to make reasonable or minor administrative changes or, to vary contractual provisions with which the employer is required to comply.