A recent decision by the Employment Appeal Tribunal (Norman & Others v National Audit Office [2014] UKEAT 0276/14/1512) has emphasised the need for employers to ensure that “flexibility clauses” are drafted unambiguously and have contractual effect if they are to be effective.

Background

It’s a familiar sight in many employment contracts: a clause that appears to let the employer amend the contract without first obtaining the employee’s consent.  These so-called flexibility clauses might relate to general employee policies, or to something more fundamental like an individual’s role or remuneration.  Whatever they relate to, however, a recent case in the Employment Appeal Tribunal (EAT) is a timely reminder for employers that they are not always as helpful as they might seem.

What Has Happened?

In Norman & Others v National Audit Office [2014] UKEAT 0276/14/1512 the employer, the National Audit Office (NAO), argued that it had the right to unilaterally vary employees’ terms, and could therefore reduce their entitlement to various forms of paid leave.  The employees challenged this and the EAT agreed with them.

The EAT’s starting point was that, for a flexibility clause to be effective, it must clearly and unambiguously identify a right for the employer to vary the employment contract unilaterally.  For example, this might involve specific wording such as “The employer reserves the right at any time during your employment to…”

In Norman & Others, the contracts stated that conditions of service were “subject to amendment”, and significant changes “will be notified” to employees.  The EAT held that this did not create a viable flexibility clause. Instead, it was found to be simply a general statement, which did not establish what the mechanism for amendment might be or the circumstances in which it might be invoked.

Similarly, a provision in the employer’s HR manual that “Changes to… terms and conditions will not be implemented while negotiations are taking place… unless management considers this essential to the operation of the NAO” was found not to have been incorporated into employees’ contracts.  The EAT further decided that, even if it had been incorporated, it would not have helped the NAO’s case, as the provision could only be relied upon in the very limited circumstances identified, which had not been shown to apply.

The EAT therefore found in favour of the claimants, who were the vanguard for around 80 employees bringing similar claims, and granted them a declaration that their entitlements in question had not been varied.

What Does This Mean For UK employers?

This is not a radical change, but rather a reminder for employers that flexibility clauses need to be drafted with care. To maximise your chances of being able to successfully rely on a flexibility clause, consider the following:

• Clarity. Draft a flexibility clause to give you an express, clear and unambiguous right as the employer to vary particular terms unilaterally.  Courts and Tribunals construe these clauses restrictively and are reluctant to imply them.  If you might want to vary a term to the employee’s detriment, we know from previous cases that it is best to make this very clear.

• Contractual effect. It may sound obvious, but if you might wish to rely on a flexibility clause, ensure that it has contractual effect.  If it is in the employment contract this should not be an issue, but if you are an employer who operates a staff handbook or HR manual that is fully or partly contractual, you should take care to ensure that the status of a flexibility clause is made clear.

• Scope. Make sure the change you wish to impose falls within the scope of the flexibility clause on which you wish to rely.  Be prepared to evidence this in the event of a claim.

• Know your limits. Even if a particular variation appears to be permitted by a flexibility clause, consider whether or not any other factors might limit your freedom to act, e.g., the implied term of mutual trust and confidence.  This does not require you to use a flexibility clause reasonably, but it does mean that you should not act in a way that effectively undermines mutual trust.  How you can show this will depend on the variation in question but, for example, it is likely to help if you give employees advance notice of the change and properly engage with any concerns that they raise.

Flexibility clauses are still a potentially useful tool, but you can’t take enforceability for granted.  As this case shows, employers should be aware of the limitations of these clauses, and draft and exercise them carefully.