Variation of Terms: When Can Employers Legally Change Employment Contracts?
Employment contracts are not set in stone—but nor can they be changed at an employer’s whim. Whether a business is facing economic pressures, shifting to remote work, or restructuring departments, adjusting contractual terms is a delicate and legally complex process. Get it wrong, and you could face breach of contract claims, constructive dismissal lawsuits, or even industrial action.
So what exactly does the law allow when it comes to changing employee terms and conditions? Here's how the position stands in 2025—factually grounded, case-law backed, and practically explained.
1. Contract Changes Must Be Agreed—Usually
At its core, UK contract law requires mutual consent for any variation to employment terms. This rule applies even in situations where an employer believes a change is minor or “for the good of the business.” Just as employees cannot unilaterally demand a pay rise, employers cannot unilaterally impose changes to hours, duties, or location—unless the contract already includes a clear, specific clause allowing it.
Some employers include variation clauses or flexibility clauses in employment contracts that appear to permit them to make changes to certain terms, such as shift patterns or duties. But courts have repeatedly ruled that these clauses must be narrowly construed and used reasonably. A vague phrase like “the employer reserves the right to amend terms as required” won’t stand up legally if it’s used to slash wages or relocate staff miles away with little warning.
2. What Can Variation Clauses Cover—and What’s Off-Limits?
Variation clauses can only support limited, predictable changes—not sweeping overhauls. For example, a well-drafted clause might allow for rota changes “within the needs of the business” or occasional relocations “within a reasonable distance.” But if that same clause is used to cut someone’s pay by 10%, or to reassign them to a role that fundamentally changes their status or responsibilities, it is likely to breach the implied contractual term of mutual trust and confidence—and open the door to legal claims.
The key here is reasonableness and proportionality. Even where a clause technically exists, using it aggressively or without proper consultation may still be seen as a breach of contract. Employees may continue working “under protest,” reserving their right to claim unlawful deduction from wages or to resign and claim constructive dismissal. Employers must tread carefully, and always weigh the business necessity of the change against the risk of legal fallout.
3. Legal Precedents: How the Courts Handle Disputed Variations
UK case law has developed a fairly consistent position on variation of terms. In Rigby v Ferodo Ltd [1988], a manufacturer tried to impose a unilateral 5% wage cut on its workers. The employee in question refused to accept the new terms but continued to work. The House of Lords held that his continued work did not imply acceptance and awarded him damages for breach of contract.
This case set the precedent that silence does not equal consent when it comes to contract changes—especially those involving pay.
In Dryden v Greater Glasgow Health Board [1992], however, the court upheld a ban on smoking at work as a lawful change, finding that the employer had acted reasonably and consulted with staff. The decision reinforced that minor or health-related changes can sometimes be lawfully implemented if handled carefully.
Another important case, Wandsworth LBC v D’Silva [1998], confirmed that employers cannot rely on broad policy documents or handbooks to impose new rules unless those documents are clearly contractual. Just calling something “policy” doesn’t make it legally binding—and employers who blur the line between guidance and contract risk a legal challenge.
4. ACAS Guidance: Best Practice for Changing Terms
The Advisory, Conciliation and Arbitration Service (ACAS) has long advised that contract changes should only be made with employee agreement and following full consultation. As of 2025, the ACAS Code of Practice on “Dismissal and Re-engagement” is legally enforceable—giving tribunals the power to award up to 25% higher compensation where an employer fails to follow it.
ACAS encourages employers to:
Explain clearly why changes are necessary
Consider employee feedback
Explore alternatives
Allow trade union or employee rep involvement
Avoid using threats or ultimatums
Changes should always be proposed—not imposed. If a change is rejected, the employer’s next step is either to negotiate further or to consider dismissal and re-engagement only as a last resort, and only after following strict procedural steps.
5. TUPE and Historic Protections
When employees transfer from one employer to another—for example, during a business sale or outsourcing—certain contract terms become legally protected under the TUPE regulations (Transfer of Undertakings [Protection of Employment] Regulations 2006). These include pay, hours, holidays, and continuity of service.
Employers cannot vary TUPE-protected terms merely to harmonise contracts or reduce costs. Any attempt to change these terms risks automatic unfair dismissal unless the employer can show an “economic, technical or organisational” reason that entails changes in the workforce (often a high bar to meet).
6. Fire and Rehire: A Legal and Moral Minefield
One of the most controversial areas in contract variation is the use of “fire and rehire” tactics—where employers terminate contracts and offer re-employment on revised (usually worse) terms. Though technically legal in the UK, this approach is heavily disfavoured by tribunals and now subject to enhanced regulation.
In Tesco Stores Ltd v USDAW (2024), the Supreme Court ruled against Tesco’s attempt to end contracts guaranteeing enhanced pay to warehouse staff, then offer new contracts without those benefits. The court found that the company’s original “permanent” promise of benefit protection could not be unilaterally undone, and the “fire and rehire” method was ruled invalid.
This case added legal weight to growing public backlash. From January 2025, employers who fail to follow the new Statutory Code on Dismissal and Re-engagement can face uncapped awards of up to 112.5 days' pay. This means that fire-and-rehire is now legally risky, reputationally damaging, and should be considered only in extreme scenarios.
7. A Step-by-Step Roadmap for Lawful Change
To change an employment contract lawfully and safely in 2025, an employer should take the following steps:
Review the contract: Check if a valid and specific variation or flexibility clause exists.
Assess the impact: Is the change minor or fundamental? If it affects pay, location, or hours, treat it as significant.
Consult: Explain the rationale, outline the benefits or risks, and open the floor to negotiation.
Negotiate: Try to reach agreement. Be open to compromise, such as phased changes or one-off compensation.
Document the change: Once agreed, issue a new written statement of terms (required by law).
Monitor and review: Continue to engage with affected employees to track morale, workload, and performance.
Where agreement is not reached, employers should never impose a change unilaterally. Instead, they may need to terminate the old contract and offer re-employment on new terms—but only after following the ACAS Code and issuing proper notice. Failure to do so could invite a tribunal claim for unfair dismissal.
8. Common Pitfalls—and How to Avoid Them
Assuming silence means acceptance
Employees may keep working under protest—but still reserve the right to claim breach. Always get explicit agreement.
Misusing variation clauses
A generic clause is not a licence for sweeping change. Courts expect clear wording, fair process, and reasonable limits.
Skipping consultation
Even small changes can have big emotional or financial impacts. Failing to consult risks destroying trust—and triggering resignations or union disputes.
Discriminatory impact
If a variation disproportionately affects a group—e.g., disabled workers, carers, or religious observers—it may amount to indirect discrimination. Conduct an equality impact assessment.
Forgetting written updates
By law, any change to key terms must be confirmed in writing within one month. Failure to do so is a statutory breach.
9. What the Future Holds
The next few years will likely bring tighter controls on unilateral variation, especially where fire-and-rehire tactics are involved. The upcoming Employment Rights Bill is expected to:
Abolish the two-year qualifying period for unfair dismissal in some contexts
Introduce stronger protections against contract changes that undermine job security
Impose positive duties on employers to justify and mitigate changes
Employers are also facing pressure to adopt more participatory decision-making, particularly in sectors where union influence is strong or where retention and culture matter. Post-pandemic shifts to remote and hybrid work have further blurred the line between “terms and conditions” and “expectations”—creating new legal grey zones around flexibility, location, and availability.
10. Final Word: Clarity, Consent, Consultation
Contractual changes are sometimes necessary—but always risky. Whether responding to economic shocks or restructuring for growth, the key for employers is to treat contracts as a foundation, not a tool of convenience.
Respecting employee input, clearly explaining the business case, and building change collaboratively can help maintain trust and reduce legal exposure. And for employees, understanding your rights can be the difference between accepting a fair change—and pushing back on an unlawful one.
Because contracts, like working relationships, only work when they’re built on mutual respect.
