Employment Update: Termination/variation of employment contract

16 September 2008

Changing contract terms by issuing new contract may lead to unfair dismissal claim

In Darby & Still v Law Society the employer had just conducted an equal pay audit which had pointed to pay anomalies which it wished to eliminate. It meant that they needed to vary the contract terms of certain employees to remove their contractual entitlement to the use of company cars.

The employer opened negotiations to vary the contracts of the affected employees by consent. However, when negotiations dragged on, the employer then changed tack and issued new contracts to the affected employees. Apparently, they only did this as an attempt to simply clarify the position.

The employees signed the new contracts but then wanted to sue for compensation for the benefits they had lost, by claiming unfair dismissal based on the termination of their old contracts.

The employment tribunal decided that there had not been a termination, but only a variation of contract, as it was never the employer’s intention to dismiss any of the affected employees. The EAT disagreed, basing their view mainly on the wording of a letter sent by the employer to the employees which clearly referred to there being a termination and re-engagement.

Point to note –

  • The EAT said that what the employer intended by the critical letter was irrelevant. What mattered was that a reasonable employee could have read it as notice of termination of employment and re-engagement. The employees had been dismissed.

Authors