THE EMPLOYERS RIGHT TO REWRITE THE

CONTRACT?
JAMES MURPHIE*
Introduction

n times of economic downturn, business restructuring and redundancies

may not always be the most palatable, or indeed sensible, way for employers
to prune labour costs. In the United Kingdom, the conventional means of
achieving cost savings is either by simply shedding labour through redundancies or by undertaking a process of business restructuring or staff re-grading
where new posts are identified and new terms and conditions of employment
issued to employees. It may even be a combination of these. The new terms
and conditions will more than likely involve ways to reduce the overall salary
bill, usually by focusing on the additional costs of covering employee absences,
for example by making reductions in sick pay and/or holiday entitlements for
staff. Where the process involves compulsory redundancies, employers must
comply with legal obligations to undertake periods of consultation1 with staff,
which might possibly lead to protracted negotiations with trade unions and/or
workplace representatives, which places a heavy burden on employers in terms
of time and cost. The uncertainty which this process brings can be very
stressful for the whole staff during this period. For example, the process of
selection for redundancy, applications for new posts and publication of new
terms and conditions, will all doubtless have a negative impact on staff morale
and, possibly, their performance. In most cases, it will be an economic
necessity to prune labour costs in order to ensure the survival of the business,
but some less scrupulous employers may use the cover of economic necessity
to try to effect changes to the terms and conditions of employment. Whatever
the employers motivation, they may wish to consider adopting an alternative
method which, arguably, involves fewer regulatory hurdles.
On February 11, 2010, the Employment Appeal Tribunal (EAT) in
London issued its judgment in Bateman v Asda Stores Ltd,2 upholding the
decision of the Employment Tribunal3 that an employers express contractual
right to vary the terms and conditions of employment without the need for

* James Murphie is a practising member of the Murray Stable at the Faculty of Advocates,
Parliament House, Edinburgh (http://www.murraystable.com [Accessed October 18, 2011]). He
also lectures in EU labour law at the University of Abertay Dundee.
1 Directive 98/59 on the approximation of the laws of the Member States relating to collective
redundancies [1998] OJ L225/16, implemented in the United Kingdom by the Trade Union and
Labour Relations (Consolidation) Act 1992 s.188.
2 Bateman v Asda Stores Ltd [2010] I.R.L.R. 370.
3 Bateman v Asda Stores Ltd Unreported February 2009 Employment Tribunal.

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THE EMPLOYERS RIGHT TO REWRITE THE CONTRACT?

employees express consent was lawful. The EAT held that the right, which
was set out expressly in a company handbook, is lawful provided that the
changes are properly implemented and the employer acts in line with the
implied duty to maintain trust and confidence. This power may extend to pay,
holidays or any other contractual or non-contractual entitlement or provision.
This decision is not without precedent4 in the United Kingdom; nevertheless, it arguably strikes a blow against the notion that a contract is a binding,
mutually agreed bargain, whose key terms are a matter of consensus and that
any changes to those terms require the assent of the parties to the contract. It
may also be argued that it fails to address adequately the issue of the
inequality in the parties bargaining position at the stage of contract formation. These cases also highlight the very real practical difficulties which result
from the dichotomy which exists in the United Kingdom between, on the one
hand, the individual contract of employment whose terms are legally binding
as between the employer and the individual employee and, on the other, the
collective agreement between an employer or employers and trade unions at
local, regional or national level whose terms are almost never contractually
binding, unless they are held to be expressly or impliedly incorporated into
individual contracts of employment.
This article discusses the Bateman decision and considers the extent to
which judicial intervention in the United Kingdom through the use of implied
terms such as reasonableness, as it is understood in cases such as United
Bank v Akhtar,5 and mutual trust and confidence6 may effectively prevent
the abuse, or restrain the exercise, of an employers reserved contractual
power to alter unilaterally the terms of an individual contract of employment.
It also considers the effects of the legal mechanism of incorporation of
collective agreements into the individual contract in this context. Further, the
article considers whether statutory intervention may be appropriate in this
situation to restrict freedom of contract in order to redress the imbalance of
bargaining power in the employment relationship. Finally, these issues are
considered in the context of current policy developments at EU level.
Changes to terms and conditions of the contract of employment
According to the general law of contract, in Scotland and the rest of the
United Kingdom, matters which are central or core to the contractthe
material termsrequire the consensus of both parties in order to create a
valid, binding legal obligation. It follows, therefore, that changes to those core
terms require the assent of both parties in order to continue to satisfy the

See Lord Woolf in Wandsworth LBC v DSilva [1998] I.R.L.R. 193 CA, discussed below.
United Bank v Akhtar [1989] I.R.L.R. 507.
6 As applied in Johnson v Unisys Ltd [2001] UKHL 13; [2003] 1 A.C. 518; [2001] 2 W.L.R.
1076; [2001] 2 All E.R. 801.
5

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consensus requirement. It is therefore of some importance whether a particular provision is regarded as material to the contract, and therefore requires
consensus, or whether it falls within what is sometimes loosely referred to as
the managerial prerogative and classified as working conditions. In the
latter case, changes to working conditions may be made unilaterally by an
employer within the managerial prerogative. In the former case, generally, the
employer may not unilaterally alter those provisions; if s/he does, the changes
may be found to be unlawful and the employers act may constitute a
repudiatory breach of contract, which may entitle the employee to resign and
pursue a claim for constructive dismissal.7 However, it should be noted that, in
the context of statutory claims for unfair dismissal,8 in appropriate circumstances an employees failure to accept the employers proposed changes to
contract terms carries a threat of potentially fair dismissal for, some other
substantial reason.9
But, to what extent does the above legal position alter when the employer
expressly reserves in the contract the power to change unilaterally any or all of
the contractual provisions? That is the specific situation which arose in the
Bateman case; whether, and in what circumstances, an employer may make
use of such an express power. Prior to examining the Bateman case, it is
perhaps helpful to consider first the decision of the Court of Appeal in
Wandsworth LBC v DSilva.10
DSilva was employed by the council and his terms of employment included
a provision that:
[F]rom time to time variations in your terms and conditions of employment will occur and these will be separately notified to you or otherwise
incorporated in the documents to which you have reference.
The council sought to amend its sick pay code (which was a collective
agreement negotiated by the council with DSilvas trade union) by reducing
from 12 months to six months the period of absence after which the employer
could require an occupational health assessment of an absent employee. That
assessment could lead to redeployment or termination of the contract. The
staff, including DSilva, refused to accept the change but it was, nevertheless,
unilaterally introduced by the council. DSilva argued that the sick pay code
had been incorporated by reference into his contract of employment and was,
therefore, legally binding. He argued that the change introduced unilaterally

7 e.g. see Marriott v Oxford and District Cooperative Society Ltd (No.2) [1970] 1 Q.B. 186; [1969]
3 W.L.R. 984; [1969] 3 All E.R. 1126.
8 Employment Rights Act 1996 s.98(4).
9 Employment Rights Act 1996 s.98(1)(b), applied in Hollister v National Farmers Union [1979]
I.R.L.R. 238; St John of God (Care Services) Ltd v Brooks [1992] I.R.L.R. 546.
10 Wandsworth LBC v DSilva [1998] I.R.L.R. 193 CA.

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THE EMPLOYERS RIGHT TO REWRITE THE CONTRACT?

by the council amounted to a breach of contract by his employer. The Court of

Appeal allowed the councils appeal, holding that the sick pay code had not
been incorporated into individual contracts. The court said that it did not
meet the legal test for incorporation as it did not provide a proper foundation
for contractual rights. Its purpose and provisions were only to provide
guidance to staff involved in the monitoring of sickness absences. Although
the appeal was decided on the grounds of lack of incorporation, the Court of
Appeal offered obiter views on the issue of validity of the unilateral variation.
Lord Woolf M.R. stated:
The general position is that contracts of employment can only be varied
by agreement. However in the employment field an employer or for that
matter an employee can reserve the ability to change a particular aspect
of the contract unilaterally by notifying the other party as part of the
contract that this is the situation. However, clear language is required to
reserve to one party an unusual power of this sort. In addition the Court
is unlikely to favour an interpretation which does more than enable a
party to vary contractual provisions with which that party is required to
comply. If therefore the provisions of the code which the Council were
seeking to amend in this case were of a contractual nature, then they
could well be capable of unilateral variation as counsel contends. In
relation to the provisions as to appeals the position would be likely to be
different. To apply a power of unilateral variation to the rights which an
employee is given under this part of the code could produce an
unreasonable result and the courts in construing a contract of employment will seek to avoid such a result.11
Thus, whilst the court upheld in principle the validity of an express reservation
of a power to vary contractual terms unilaterally, it nevertheless set out
safeguards against its abuse and even limitations on its use: clear language
must be used to set out the reserved power; the power should be restricted to
variation of the obligations with which that party (usually the employer) must
comply; and the use of the power must meet an overall test of reasonableness in relation to the particular variation.
Against that background, let us turn to consider the case of Bateman v Asda
Stores Ltd.12 Prior to 2007, Asda Stores Ltd operated two different pay
structures for employees, an old regime and a new regime. They sought to
rationalise these by amending the contracts of employees on the old regime
to bring them into line with employees on the new regime. The vast
majority of employees transferred voluntarily to the new regime and those

11
12

Wandsworth LBC v DSilva [1998] I.R.L.R. 193 at [31].

Bateman v Asda Stores Ltd [2010] I.R.L.R. 370.

THE EMPLOYERS RIGHT TO REWRITE THE CONTRACT?

335

who refused were transferred involuntarily. Almost 700 of those employees

brought claims for payment of unauthorised deductions from wages, contrary
to s.13 of the Employment Rights Act 1996, damages for breach of contract
and, in some cases, unfair dismissal. Six test cases were brought to a hearing
before an Employment Tribunal (ET). Asda Stores Ltd contended that it
was entitled to transfer these employees involuntarily by relying on a provision
of the Colleague Handbook to the effect that Asda:
[R]eserved the right to review, revise, amend or replace the contents of
this handbook, and introduce new policies from time to time reflecting
the changing needs of the business.
The purpose of the handbook was to provide staff with details of the pay
structures and other terms and conditions of employment, as well as other
non-contractual information. The issues, which were agreed prior to the
hearing, were:
(1) whether the introduction of the new regime required the consent
of claimants, having regard to the nature of the change in pay
classification and the provisions of the Colleague Handbook;
(2) if such consent was required, whether the claimants did consent,
expressly or impliedly;
(3) if the ET found that consent was required and had not been given,
whether the claimants had suffered any loss that would amount to an
unauthorised deduction of wages.
The ET found for the employers on the first issue, i.e. that, in terms of the
wording of the handbook, they were entitled to introduce the new regime
without obtaining the claimants consent, and ruled, therefore, that there was
no need to consider the second and third issues.
At the ET hearing, the claimants attempted to argue that the variation
clause in the handbook had never been incorporated into their individual
contracts of employment; therefore, it could not be relied upon as a basis to
justify the employers actions. The ET refused to allow this point to be argued,
because it was not mentioned in the amended claim form (ET1), or the agreed
issues for the hearing, or the claimants skeleton argument. The ET concluded
that it was not in the interests of justice that this new argument be raised at
the hearing. This is unfortunate, as it does potentially call into question the
final outcome of the case, though not necessarily the legal discussion of the
variation question which is predicated on the basis that the term in the
handbook was lawfully incorporated. In reaching its conclusion, the ET
adopted the words of Lord Woolf M.R. in Wandsworth LBC v DSilva,13
13

[1998] I.R.L.R. 193 at [31].

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THE EMPLOYERS RIGHT TO REWRITE THE CONTRACT?

holding that, as an exception to the general rule that variations of contract

terms require consent of all parties, an employer may expressly reserve the
right to vary terms irrespective of consent, even if it involves financial loss.14
The ET further held that there might be exceptions to the application of this
exception in a particular case, for example, where the:
[E]mployer had acted so unreasonably or so arbitrarily or capriciously as
to amount to a breach of the implied term of trust and confidence.15
The ET held that no such case had been made by the claimants. Further, they
held that if the change was introduced without notice or warning, or without
consultation, that might breach the implied term of trust and confidence. But,
in this case, there had been sufficient notice and consultation. The ET was
satisfied that, by seeking to rationalise pay structures, the power to vary had
been exercised within the terms of the handbooks provision, i.e. to reflect the
changing needs of the business. The claimants appealed to the Employment
Appeal Tribunal.
Four grounds of appeal were argued by the claimants. First, it was
submitted that the ET had failed to apply the proper principles of construction
by failing to take account of the background of the employees affected16 by the
change to the new regime. It was argued that:
[N]ot one of the 150,000 employees who entered a contract on the basis
of it (the handbook) could conceivably have intended or expected its
effect would be to leave to the unilateral discretion of the respondent the
right to reduce the pay increase or change the hours of work and cut
holidays without the need for consent and without the need for notice.17
The difficulty for the claimants with regard to this submission was that no
evidence was adduced before the ET of any such intentions, expectations or
limitations on the part of any employees. There was no ground of appeal that
the ET failed to make such a finding and indeed there was no evidence led
which would have justified such a finding in any event. Accordingly, this
ground was refused.
Secondly, it was submitted that the ET failed to appreciate that Asda Stores
Ltds duty of trust and confidence required them to have brought home to the
claimants the meaning of the contractual provisions.18 The EAT held that the

14

Bateman v Asda Stores Ltd [2010] I.R.L.R. 370 at [12].

Bateman v Asda Stores Ltd [2010] I.R.L.R. 370 at [14].
16 Founding on the judgment of Lord Hoffmann in Investors Compensation Scheme Ltd v West
Bromwich Building Society [1998] 1 W.L.R. 896 at 912H913E.
17 Bateman v Asda Stores Ltd [2010] I.R.L.R. 370 at [22].
18 Founding on judgment of Lord Bridge in Scally v Southern Health and Social Services Board
[1992] 1 A.C. 294 at 305307.
15

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337

claimants were precluded from raising this issue at appeal, as they had
expressly conceded at the ET that there was no issue of trust and confidence
and had adduced no evidence in support of that contention.
Thirdly, it was argued that the decision was perverse because the handbook
did not permit Asda Stores Ltd to incorporate the new regime into contracts
of employment without first obtaining their employees express consent. The
EAT affirmed the view of the ET that the power to vary terms, as expressed in
the handbook, consisted of two separate but important rights: (a) a right to
review, revise, amend or replace the content; and (b) to introduce new
policies. Accordingly, referring again to Lord Woolf in Wandsworth LBC v
DSilva, the power to vary was clear and unambiguous.
Finally, it was argued that the ET should have construed the words of the
handbook provision contra proferentem. The EAT dismissed that argument on
the basis that the rule only applies when there are ambiguities, and that was
not the case here.
In summary, then, it is submitted that the impact of the decision in Bateman
is rather muted given that perhaps the two strongest points in the claimants
favour were not properly addressed in the course of the ET hearing and
therefore could not be properly canvassed at appeal. Nevertheless, there are
significant issues raised by the case which can still bear fruitful analysis despite
these limitations. Before doing so, it may be helpful to note the decision in
Malone v British Airways Plc,19 a case decided one week after Bateman. The
issues in Malone are many and varied; however, of particular interest to this
discussion is a power reserved by the employer (BA), in contracts post-1994,
to vary unilaterally the terms of employment. Briefly, the employer sought to
impose new staff complements for cabin crew following a stalemate in
negotiations with trade union representatives. It was a live issue between the
parties as to whether the prior collective agreements which set out staff
complements (and on which the employees and trade unions sought to rely)
were incorporated into the employees individual contracts or not. If not, then
the agreements were clearly unenforceable at law. It was BAs position that, if
they were incorporated and therefore enforceable, BA had varied their terms
unilaterally by invoking the expressly reserved power in the contract. The
claimants disputed the validity of such a power and contended that BA was
not entitled to do this. In the High Court, Sir Christopher Holland held that,
following Wandsworth LBC v DSilva,20 such a clause was sustainable, provided
it was clear in its terms and produced a reasonable result if invoked. The judge
found that the reasonableness test should apply to both aspects of the
proposed changes, i.e. first that the staff complements were now set unilaterally by BA instead of through collective agreements and, secondly, that

19
20

Malone v British Airways Plc [2010] EWHC 302 (QB); [2010] I.R.L.R. 431.
[1998] I.R.L.R. 193 at [31].

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THE EMPLOYERS RIGHT TO REWRITE THE CONTRACT?

the actual changes made to the staff complement were reasonable in the
circumstances. On the first point, it was held that the reason for imposing the
change unilaterally was the very serious financial state in which BA found
itself and the need to take urgent action in the interests of the company, its
employees and its financial backers. This was exacerbated by the fact that
negotiations with the trade unions had ground to a halt and were unlikely to
restart. It is clear that, in the judges view, had it not been for the severe
financial imperative, it is extremely unlikely that the actions of BA would have
been viewed as reasonable.21 As regards the changes themselves, it was held
that the new staff complements were still significantly above Federal Aviation
Authority and Civil Aviation Authority minimum requirements and if, in light
of the serious adverse financial situation, the changes enhanced the prospects
of preservation of job security and pay, and were not drastic and extreme, then
they could not be deemed unreasonable. It is significant, therefore, that the
emphasis once again is on preserving jobs and reflecting the changing needs of
the business. The underlying message is clear: that the social aspect must yield
to the economic imperative in order to ensure the survival of the business.
This developing theme is discussed further below.
Analysis of contractual issues arising
The parties to an employment contract, as with any other contract, are free to
agree such express terms and conditions as they wish (subject, of course, to the
general law of contract). What distinguishes the employment contract from
most other contracts is the fact that, in the overwhelming majority of cases,
the terms are essentially dictated by one party, i.e. the employer. Normally, the
employee will simply have to choose whether or not to accept or reject the
employers terms in their entirety. The law deems the parties to have reached
consensus ad idem, i.e. an agreed bargain has been concluded at arms length
between freely contracting parties. Therefore, if one party expressly reserves a
contractual power to vary unilaterally the agreed termsa provision that was,
at least notionally, agreed at the contract formation stageit must surely
satisfy the legal requirement of consensus? If so, must the employees merely
accept whatever changes, even devaluations, occur in respect of their contract
terms and working conditions? It is submitted that there are three key
situations where, in appropriate circumstances, a counterbalance to the
inequality of the parties bargaining position may be found: (1) collective
agreements; (2) judicial intervention; and (3) statutory employment protection
rights. Where an employee relies on one or more of these, the principal aim is
21 The Court of Appeal, in reviewing this decision on November 3, 2010, declined to give a view
on the reasonable changes issue as they said it was now hypothetical in light of their decision
that the collective agreement provisions relating to cabin crew complements were not, apt for
incorporation into individual contracts: Malone v British Airways Plc [2010] EWCA Civ 122;
[2011] I.R.L.R. 32 at [63].

THE EMPLOYERS RIGHT TO REWRITE THE CONTRACT?

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to restrain the employers arbitrary exercise of power. Let us assess the impact
of each of these in a situation such as that presented in Bateman and Malone.
(1) Collective agreements
Historically, the traditional means of agreeing employment terms and conditions for groups of employees is by means of collective agreements, whose
scope of application may be national, regional, sectoral or local. Culturally,
unlike most other EU Member States, the approach of UK employers and
employees towards collective agreements has been to regard them as not
legally binding.22 The purpose of negotiating collectively is of course to
strengthen the bargaining position of the workforce and to ensure consistency
of treatment of workers. Collective agreements may also provide a means of
agreeing workplace policies and structures for pay and promotion. The
employers adherence to the agreements is normally secured via trade union
membership and, ultimately, the threat of industrial action and economic
disruption. Alternatively, in some cases, the terms of these agreements may be
incorporated into the employees individual contracts, either expressly or
impliedly,23 in which case the terms may acquire the status of legal enforceability. The employer would, in theory, require the employees consent to a
proposed variation of a term so incorporated. However, standing the decisions
in both Bateman and Malone, it would appear that an employers use of a
reserved power to vary contractual terms would not amount to breach of
contract and would defeat an attempt by an employee to insist on the
provisions of the collective agreements even if they were held to have been
incorporated.
In Bateman, the incorporation point was not argued, yet the decision in
favour of the employer is predicated on the unchallenged fact of incorporation
of the term. In Malone, it was the employees who sought to rely on the
collective agreement, yet the court held that its terms were not, apt for
incorporation. Even if they were, the courts view seems to have been that
the employers unilateral power to vary would still carry the day. The legal
question of incorporation of collective terms into the individual contracts of
employment therefore becomes critical where the unilateral power to vary is
expressed in a collective agreement or a handbook or similar document.
Putting it another way, the validity of the employers exercise of the power to
vary may well turn on whether the court holds the provisions of the collective
agreement to have been incorporated into individual contracts. The decisions
in these cases, in the writers view, raise a serious question mark as to the
efficacy of a system of labour law which either places the issue of securing an

22 Reinforced by Trade Union and Labour Relations (Consolidation) Act 1992 s.179 which
contains a rebuttable presumption to that effect.
23 For example, see Cadoux v Central RC, 1986 S.L.T. 117; [1986] I.R.L.R. 131.

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THE EMPLOYERS RIGHT TO REWRITE THE CONTRACT?

employers compliance with a collective agreement within the industrial

relations domain or makes the operation of the variation clause contained in a
collective agreement subject to the uncertainty and unpredictability as to
whether or not the terms of this or that collective agreement have been
incorporated into individual contracts of employment. It is respectfully
submitted that these cases, and others, raise an important issue of legal
certainty which requires to be addressed by government, employers and trade
unions with regard to the status, purpose and function of future collective
agreements. Further, it is submitted that these systemic problems are contributory factors of the economic damage resulting from ongoing disruption to
public services such as air transport.24
(2) Judicial intervention
In both Bateman and Malone, the courts held, founding on Lord Woolfs
dictum in Wandsworth LBC v DSilva, that an employers reserved power to
vary contractual terms may be limited by the rather vague concept of
reasonableness. The courts have, on a number of occasions, applied the
reasonableness concept in order to curb the perceived excesses of executive
power. For example, in United Bank v Akhtar,25 it was held to be an implied
term that an employer will invoke an express mobility clause in the contract
reasonably. The test of reasonableness is not a novel one; it is applied in a
number of situations in employment law. Apart from the band of reasonable
responses test in unfair dismissal cases,26 it is applied by s.141(3) and 141(4)
of the Employment Rights Act 1996 in relation to a redundant employees
refusal of an offer of re-engagement under a new contract of employment.
Where the new contract differs in its terms and conditions, the refusal is not
unreasonable if the offer does not constitute an offer of suitable alternative
employment in relation to the employee. A number of authorities illustrate
that the question of whether the offer is suitable or not in relation to the
employee is an objective test, and the issue of the reasonableness of the
refusal of the offer is a subjective test, viewed from the standpoint of the
employee.27 It is of particular interest to note that where changes to the
contract are involved which devalue the contracts benefits, e.g. reduced sick
pay or holiday entitlements, the courts tend to hold that the offer is not
objectively suitable. Thus, in a genuine redundancy situation, whatever the
circumstances, an employer may not avoid making redundancy payments to
staff by devaluing the terms of the contract whereas, if the employer has a
contractual power of unilateral variation the resulting issue of alleged breach
24 It is noteworthy that in Malone the trade union, Unite, received a fresh mandate from its
members to call further strikes of cabin crew at Easter 2011.
25 United Bank v Akhtar [1989] I.R.L.R. 507.
26 See Iceland Frozen Foods Ltd v Jones [1982] I.R.L.R. 439.
27 Cambridge & District Cooperative Society v Ruse [1993] I.R.L.R. 156.

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341

of contract is determined according to whether the change is necessary for the

economic needs of the business, thereby avoiding the allegation of acting
capriciously in proceeding with the change. In the former case, the
employee receives his/her statutory redundancy payment, but has no job; in
the latter case the employee continues in employment but with a reduced
benefit under the contract. If, as expected, the use of clauses such as those in
Bateman and Malone proliferate, it will be interesting to see how the courts
and tribunals further refine their determination of the issue of
reasonableness.
In Bateman, both the EAT and the ET relied upon the fact that the
claimants did not contend that the employer had, acted capriciously, or
arbitrarily, or in any way breached mutual trust and confidence, in imposing
the new regime.28 In a case of unlawful variation, the employers breach of
the implied term may constitute a repudiatory breach of contract entitling the
employee to resign and claim constructive dismissal.29 But, how effective are
such implied terms really in protecting employees terms and conditions
against unilateral change, or compensating employees for losses sustained as a
result of that breach? Does the common law provide a sufficient counterbalance to the obvious inequality in the bargaining position between the
parties at the formation stage?
The implied term of mutual trust and confidence has been defined by the
House of Lords in Malik v Bank of Credit and Commerce International SA (In
Liquidation),30 conduct likely to destroy or seriously damage the degree of
trust and confidence the employee is reasonably entitled to have in his
employer. In the cases discussed above, the courts specified this more closely
as conduct which is, arbitrary or capricious or produces an unreasonable
result. Arbitrary suggests a lack of sufficient consultation or discussion with
the workforce regarding the change, or perhaps failure to assess the impact of
the proposed changes on the employees. Capricious suggests the proposed
changes are not justified in the circumstances; for example they may result in
unduly onerous working conditions. However, in Bateman, the conduct was
held not to be arbitrary in view of the period of consultation and was not
capricious in view of the employers need for a unified, integrated, pay scale,
and the fact that the existing employees were guaranteed to suffer no financial
disadvantage. In Malone, the severe financial situation which imposed an
imperative on the employer to act obviated any suggestion of arbitrary or
capricious conduct.
Thus, in terms of the common law of contract, in protecting the terms of
their individual contracts of employment, employees are dependent upon
28

Bateman v Asda Stores Ltd [2010] I.R.L.R. 370 at [16].

Malik v Bank of Credit and Commerce International SA (In Liquidation) [1998] A.C. 20;
[1997] 3 W.L.R. 95; [1997] 3 All E.R. 1.
30 Malik v Bank of Credit and Commerce International SA (In Liquidation) [1998] A.C. 20;
[1997] 3 W.L.R. 95; [1997] 3 All E.R. 1.
29

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THE EMPLOYERS RIGHT TO REWRITE THE CONTRACT?

judicial intervention to prevent any abuse, or to restrain the exercise, of an

employers reserved contractual power to alter the contract terms. This
renders the application of the law inherently uncertain and unpredictable, with
employees perhaps vulnerable to an individual judges approach to this issue.
Moreover, the employees case will be weighed against the employers overall
financial situation and the economic needs of the business. Such a system
tends, in the light of the above decisions, to render whatever social protection
the law provides rather thin and precarious.
Notwithstanding the above criticisms, on the basis of the authorities
considered, the scope of the underlying obligation of mutual trust and
confidence appears sufficiently broad in principle to cover the developing
situation under discussion. What is uncertain, though, is the extent to which
courts will uphold the existing contractual terms of employees in the face of a
threatened devaluation of those terms by the employer. Although consideration of this point is outwith the scope of this particular discussion, it is
submitted that the time may now be ripe for the development of a broader,
more general, implied duty of fair dealing between the parties. Alternatively, the scope of the existing implied duty of fidelity or good faith
might be extended to include the employers exercise of discretionary powers
such as unilateral variation of the contract. This approach chimes with the
current discourse on the development of a European Code of Contract
Draft Common Frame of Reference31 and, of course, such an approach
already forms an important consideration within labour law contracts in
civilian systems.
It is also important to consider the potential effects of these developments
on the application of legal remedies available to an employee who successfully
proves that his/her employer is in breach of the implied term of mutual trust
and confidence. The employees claim would either be for interdict (injunction) to prevent an anticipated breach and to preserve the status quo, or a
claim for damages resulting from breach of contract where the employee is
entitled to resign. In terms of Pt X of the Employment Rights Act 1996, the
financial loss sustained by an employee in actual or constructive dismissal is
subject to the statutory cap on awards. It was affirmed in Johnson v Unisys
Ltd32 that no claim for damages at common law exists for breach of the
31 See House of Lords, European Union Committee, Twelfth Report, European Contract Law:
The Draft Common Frame of Reference: Session 200809 (The Stationery Office, 2009); available
at http://www.publications.parliament.uk/pa/ld200809/ldselect/ldeucom/95/9503.htm [Accessed October 18, 2011]. Paragraph 32 states: In contrast to English contract law, the draft CFR contains an
overarching principle of good faith and fair dealing, which applies to the process by which a
contract is brought into being as well as to the performance of the contractual obligations (see
Book II, article 3.301 and Book III, article 1.103). This difference was described by Professor
Vogenauer as a classic example where English law deviates very much from continental systems
(Q 14).
32 Johnson v Unisys Ltd [2001] UKHL 13; [2003] 1 A.C. 518; [2001] 2 W.L.R. 1076; [2001] 2 All
E.R. 801.

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implied term of mutual trust and confidence which is connected to a dismissal.

According to Moore-Bick L.J. in Edwards v Chesterfield Royal Hospital NHS
Foundation Trust,33 the ratio of Johnson v Unisys Ltd is:
[T]hat the common law does not imply into a contract of employment a
term that the employer will not act unfairly towards the employee in
relation to his dismissal and that the courts are not at liberty to develop
the common law implied term of trust and confidence in order to give rise
to such an obligation. However, the speeches recognise that where a
breach of contract by the employer can be identified, the employee is
entitled to obtain any remedy available to him under the general law.
The Court of Appeal in Edwards34 distinguishes the conduct of the employer
in relation to the dismissal from conduct amounting to breach of another term
of the contract. Thus, if the cause of the employees constructive dismissal is
the employers unreasonable unilateral variation of contract terms, then
potentially the employees claim for damages is for all losses sustained as a
result of the alleged breach. This threat of full compensation may operate,
therefore, as a limiting factor on employers arbitrary, capricious or unreasonable exercise of their contractual power of unilateral variation.
(3) Statutory protection
This is the principal method whereby the UK legislature, in implementing
public policy, intentionally seeks to redress the imbalance in the parties
bargaining position through a series of legislative measures designed to
provide statutory protection of employees rights. There is an inherent tension
in this approach, with the need to strike an appropriate balance between
providing employee protection rights whilst respecting the principle of freedom of contract. There are several statutory provisions which prohibit parties
to employment contracts from contracting out of certain obligations, for
example unfair dismissal, redundancy, and the duty of care. It would be a
relatively straightforward matter to legislate and render a clause such as was
found in the Bateman and Malone cases null and void, or to specify conditions
under which it should lawfully operate. But the key question is the desirability
of adopting such an approach, from the perspective of public policy. This is
not a novel concept; in the field of consumer law the legislature (both
domestic and European Union) has adopted an approach of imposing
standard contract terms, effectively restraining the power of business to

33 Edwards v Chesterfield Royal Hospital NHS Foundation Trust [2010] EWCA Civ 571; [2011]
Q.B. 339; [2010] 3 W.L.R. 1285; [2010] I.R.L.R. 702 at [23].
34 Edwards v Chesterfield Royal Hospital NHS Foundation Trust [2010] EWCA Civ 571; [2011]
Q.B. 339; [2010] 3 W.L.R. 1285; [2010] I.R.L.R. 702.

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impose their own contract terms on consumers. This is a reflection of the

unequal bargaining power of the parties to a consumer contract. Given the
problems discussed above in relation to collective agreements and the
unpredictability of the common law in relation to breaches of implied terms,
perhaps the time has come for legislators to adopt a systematic approach more
in line with that of consumer law.
As we have seen, the inherent tension between the economic and social
imperatives tends to lead, where their interests conflict, to the economic
considerations carrying greater weight. Confronted with a stark choice (as in
the Malone case) between, on the one hand, upholding a collective agreement
term and risk putting the employer out of business and, on the other,
preserving jobs at the risk of devaluation of the terms and conditions of
employment contracts, it is reasonable to suppose that a court or employment
tribunal will opt for the latter. Thus, opponents will argue that tying the hands
of the judiciary by imposing regulatory control of labour law contracts in a
similar manner to consumer law contracts, is possibly to adopt too rigid an
approach more usually found in civilian systems, while retaining the flexibility
afforded by the common law is perhaps to be commended in this difficult
situation. This is perhaps a convenient point to consider in what way
contemporary EU labour policy impacts on the subject matter of this article.
Impact of European Union labour law
Notwithstanding the inherent differences between the approach of the common law and civilian systems to the formation and enforceability of contracts
of employment, employment law or labour law in the United Kingdom does
not operate within a vacuum. Clearly, one of the most significant external
forces which shape its development is membership of the European Union.
Since 20062007, the European Union has adopted the concept of flexicurity as its flagship policy for the reform of EU labour law. A detailed
consideration of this policy is beyond the scope of this present work, however,
it should be noted that, in pursuit of this policy, the EU Council has issued
several communications in which a series of common principles35 have been
agreed and attempts have been made to set out clearly ways in which Member
States should reform their national labour law systems in order to meet the
EU objectives.
35 The common principles for flexicurity adopted by the Council on December 5 and 6, 2007
and endorsed by the European Council on December 14, 2007 (16201/07); Commission
Communication on flexicurity2 which was the basis of a broad-based discussion on the definition
of the term flexicurity COM(2007) 359 of June 27, 2007; Commission Communication on New
Skills for New Jobs COM(2008) 868 of December 16, 2008; Council Conclusions New Skills for
New Jobs: Anticipating and matching labour market and skills needs adopted on March 9, 2009
(6479/09); The Brussels European Council on March 19/20, 2009 stressed that the social
protection systems, in their role as an automatic stabilizer are key to restoring and strengthening
confidence and helping pave the way for recovery (para.19 of Presidency Conclusions, 7880/1/09).

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European Union policy of flexicurity

The concept of flexicurity, which was first developed in Nordic countries in
the 1990s as a labour market policy, brings together, and attempts to
reconcile, the two notions of flexibility and security which are not,
perhaps surprisingly, viewed as contradictory, but complementary and even
mutually supportive. The theory is that a successful and efficient labour
market can be achieved by pursuing the objective of a low level of protection
for workers against dismissal, combined with high unemployment benefits and
rights of the unemployed to receive training. In a subtle change of emphasis,
the concept of job security is replaced with employment security.
Title IX (arts 145150) TFEU provides for the continued development of
an European Employment Strategy and, on that basis, the Council has agreed
these common principles, of which the most relevant to this discussion is the
requirement to provide, flexible and reliable contractual arrangements. This
principle is further stated in the Council Conclusions on Flexicurity in times of
crisis36 to mean:
[I]mplementing adequate responses with a view to adapting, if relevant,
employment and labour market provisions in the framework of the
flexicurity approach in order to promote flexible but secure transitions
from unemployment to employment as well as from one job to another,
while supporting reliable contractual arrangements for those in work.
No further definition of, reliable contractual arrangements is provided. It
may appear, prima facie, that this does not conflict with the courts reasoning
in the Bateman and Malone cases as, arguably, these cases provide examples of
exactly the sort of flexibility which has been endorsed by the courts in order to
secure jobs. However, given the shift in emphasis from job security to
employment security, it may be argued that the economic goal of preserving
jobs with a financially stricken employer, at the expense of a devaluation of
the terms and conditions of employment, does conflict with the whole concept
of flexicurity and specifically with the principle of, reliable contractual
arrangements for those in work. It is respectfully submitted, therefore, that
the approach adopted by the court in Malone, in particular, appears to run
counter to the contemporary EU labour law discourse.
Summary and conclusions
It would appear that provisions in contracts of employment such as in
Bateman and Malone are here to stay for the foreseeable future. So far as

36 Council Conclusions on Flexicurity in times of crisis, 2947th Employment, Social Policy,

Health and Consumer Affairs Council meeting, Luxembourg, June 8, 2009.

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identifying a means of challenging an employers exercise of such a contractual

power is concerned, this appears to be limited either to industrial action or a
court action for breach of an express or implied term of the contract. There
will be situations where courts are required to adjudicate, first on whether the
employers express power of unilateral variation, or indeed the contractual
term the employer seeks to vary, is or is not held to be incorporated into
individual contracts. A court action for breach of contract is likely to be
successful only in exceptional cases, where the employers use of the provision
is arbitrary, capricious or produces an unreasonable result. It is submitted that
there is probably little appetite amongst businesses for the extension of
statutory protection legislation to include regulation of the contract of
employment in a consumer law sense. The flexibility afforded by the common
law will continue to be preferred by business, and legislators, as an adequate
means of limiting or restraining potential abuses of the employers discretion.
Let us return, finally, to the dictum of Lord Woolf in Wandsworth LBC v
DSilva37: The ability of the Council to vary the contract unilaterally would
not necessarily provide a justification in the event of a complaint of unfair
dismissal. This is a reference to the position adopted by tribunals in earlier
case law,38 whereby an employees refusal to accept changes to his/her terms
and conditions of employment could, in appropriate circumstances, provide a
potentially fair reason for dismissal in terms of s.98(4) of the Employment
Rights Act 1996, by falling within the catchall phrase, some other substantial
reason. The justification for this was that the employer required the
employee to agree to the changes to the contract terms in order to adapt and
to meet the changing, needs of the business. In those cases, economic
factors were being used to justify dismissal in exceptional circumstances for
the refusal to accept changes to employment contracts. In other words, the
economic imperative outweighed the degree of social protection afforded by
the consensus principle of the law of contract. Now the same reasoning is
being used to justify a much broader contractual power to alter contract terms
unilaterally.
In 1987, the Single European Act introduced legislative provisions into the
EU Treaty which gave a legal basis to the concept of social dialogue and
required this to be undertaken by the social partners.39 This partnership
concept was hailed as the new, modern approach to industrial relations and
has been reinforced by a number of significant measures such as European

37

Wandsworth LBC v DSilva [1998] I.R.L.R. 193 CA.

Johnson v Unisys Ltd [2001] UKHL 13; [2003] 1 A.C. 518; [2001] 2 W.L.R. 1076; [2001] 2 All
E.R. 801.
39
Arts 151161 TFEU.
38

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347

Works Councils,40 the Working Time Directive,41 and numerous provisions

creating information and consultation rights42 for workers. Yet, arguably, what
the Bateman and Malone cases demonstrate beyond doubt is that an
employers right to manage the business retains overall supremacy. It is
submitted that this is simply a modernised version of Kahn-Freunds assertion
that there, can be no employment relationship without a power to command
and a duty to obey without this element of subordination in which lawyers
rightly see the hallmark of the contract of employment,43 an assertion which
remains as true today as it was 40 years ago. Professor Blanpain, in European
Labour Law,44 asks whether the laws development in this field can be
accurately described as a, social trailer attached to the economic locomotive? In the justification given by the courts for upholding the employers
right to rewrite the contract of employment, nothing exemplifies this home
truth more eloquently.

40 Directive 94/45 on the establishment of a European Works Council or a procedure in

Community-scale undertakings and Community-scale groups of undertakings for the purposes of
informing and consulting employees [1994] OJ L254/64; recast as Directive 2009/38 on the
establishment of a European Works Council or a procedure in Community-scale undertakings
and Community-scale groups of undertakings for the purposes of informing and consulting
employees [2009] OJ L122/28.
41 Directive 93/104 concerning certain aspects of the organisation of working time [1993] OJ
L307/18; recast as Directive 2003/88 concerning certain aspects of the organisation of working
time [2003] OJ L299/9.
42 Directive 2002/14 establishing a general framework for informing and consulting employees
in the European Community [2002] OJ L80/29.
43 Otto Kahn-Freund, Labour and the LawThe Hamlyn Lectures: Twenty-Fourth Series
(London: Stevens under the auspices of the Hamlyn Trust, 1972).
44 Roger Blanpain, European Labour Law, 12th revised edn (Alphen aan den Rijn: Kluwer Law
International, 2010), Ch.4.