Employment Law

When can contracts of employment be varied?

Published in: November 2016

Anyone who has been employed in the same place for a significant amount of time will oftentimes have their role evolve, whether it is to do with the addition of extra duties, responsibilities, and obligations. It’s only natural. However, the contract of employment does not reflect the professional evolution of an employee and can remain rather static. Therefore, the question that needs to be asked is: Can an employment contract be varied?

Before delving further into the issue of variation of a contract of employment, we should emphasise that this is a very broad look at the issue, and won’t cover every possible complexity regarding the matter.

Has the contract changed?

The first step in assessing whether or not there has been a change in the contractual relationship, is to look at whether or not the change relates to an issue that is regulated by the contract. Generally speaking, if the change is regulated by contract, the contract may be changed unilaterally, and can fall within the scope of ‘managerial prerogative’.

If the contract provides latitude for variation, the change may be introduced without the need of another contract of employment, and leaves the contract in its current form. However, if the change falls outside the scope for variation, then the change cannot be imposed by one party without the consent of the other, or it may be seen to be repudiatory (per Rigby v Ferodo Ltd (1988) ICR 29). However, if the change is consensual, there is no requirement for formality, as was noted by Wilcox J in Nikolich v Goldman Sachs J B Were Services Pty Ltd (2006) FCA at 209: “I appreciate that an agreement for a variation of a contract of employment may be made orally, and even with a minimum of formality.” However, his Honour further added, “... there must be something that expresses an intention to vary the contract, as distinct from acting pursuant to the contract.”

What happens if there is a change to position or remuneration?

For the most part, employers may make changes to the position and remuneration without the need to vary or terminate the contract – but it is a matter of degree. In ascertaining whether or not the employer has the latitude to make the changes without varying or terminating the contract, rests on the facts of each individual case. So how much change to the contract may necessitate in the varying or terminating of the contract? In Martech International Pty Ltd v Energy World Corporation Ltd (2006) 234 ALR 265 at 162, French J said the following: “A contract under which a person is employed, whether directly or through a corporate entity controlled by that person, may be discharged by sufficiently significant changes to the duties and/or the remuneration of the person so employed.”

As French J noted in Martech, the change has to be “significant”, and other case law has generally reinforced this requirement.   

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