A contract of employment is a legal agreement that sets out the terms and conditions of an employee’s work and which, once agreed, cannot be unilaterally altered or varied by either party without the mutual agreement of both the employer and the employee. Under s.6 of the Employment Act 2000, a “statement of employment”, aka a contract of employment, must be provided to all those who meet the statutory definition of employee. An employee is “a person who is employed wholly or mainly in Bermuda for remuneration under a contract of employment” but not someone who is a contractor or who falls into the list of exceptions at s.4(2) of the Employment Act 2000.
While the contract of employment lays the foundation of the employment relationship, there may be occasions or circumstances where an employer, or employee, wishes to vary the contract of employment. For an employer, the reasons for varying a contract may include changes in business needs, and market conditions, whereas an employee may require adjustments to their original terms of employment due to a change in their personal circumstances.
Varying a contract of employment can be simple where all parties agree on the change. However, it can also be complex, particularly where it is necessary to balance an employer’s need for flexibility with an employee’s rights and individual expectations. This note discusses some of the complexities of varying a contract of employment contract but is not a substitute for legal advice. Legal advice should be sought on a case by case basis, especially where termination is contemplated.
When might a contract need to be varied?
Contracts of employment may need to be varied for several reasons, including business reorganisation or restructuring, changes in law or regulation, economic conditions, technological changes, employee requests and mutual agreement. Common variations include employers wishing to alter an employee’s hours or place of work, their salary or a job title, or an employee requesting flexible working.
Where the variation is in the interests of the employee, the process is less sensitive than when the variation is contrary to the employee’s interests. This is because an employee is far more likely to agree to a favourable variation rather than a prejudicial one.
In cases where the employer anticipates that the variation of the contract of employment is unfavourable to the employee, variation should be handled carefully so as to avoid disputes and potential legal challenges.
How to alter a contract of employment?
Employers should be careful to ensure that there is appropriate consultation and negotiation with the employee to ensure transparency of intention and process. The objective for an employer is to seek the agreement of the employee to vary the contract of employment, however this may be more difficult where the new terms offered are less favourable than the employee’s current terms.
Any variation should be presented to an employee in writing. This can either be in the form of a revised contract of employment or the change can be formalised in a letter of variation. Where a letter of variation is chosen, it is important to set out what the original relevant term of employment was and how this is going to change, and why. If a new contract of employment is offered, it is important for the contract to state that it replaces the previous contract.
In either case, both parties should sign the document to ensure that the varied agreement is recorded in writing.
Generally, an employer should provide reasonable notice of a proposed change of the terms of employment, in order for the employee to have a proper opportunity to consider the proposed change and to, if necessary, seek legal advice.
Where there is no agreement
Where an employee does not agree to the proposed changes to their contract of employment, the employer must carefully evaluate the reasons why they wish to change the employee’s terms of employment. Can the employer continue the employment on the existing terms? If not, the employer may, where appropriate, consider terminating the employment by reason of redundancy.
Conditions of redundancy are set out at s.30(3) of the Employment Act 2000 and include reorganisation of the business and impossibility or impracticality of carrying on the business at the usual rate or at all due to circumstances beyond the control of the employer. It may be that an employer needs to alter the terms of an employee’s contract of employment due to one of the conditions of redundancy and cannot continue to offer the same terms. In this case, where there is an absence of agreement, termination for redundancy could be fair.
Varying a contract to ensure compliance with legislation
Under s.6(2) of the Employment Act 2000, a statement of employment must contain the particulars set out from subsection a) to r) i.e. the entitlement to a meal break or the terms for sick leave. The failure to provide an employee with a statement of employment which is compliant with the legislation could result in a civil penalty of up to $5,000.
Many contracts of employment in Bermuda will pre-date the introduction of s.6(2) of the Employment Act 2000 and employers should consider varying non-compliant contracts of employment. In most cases, this will involve the production of a revised statement of employment.
For further information, please contact:
John Wasty, Partner, Appleby
jwasty@applebyglobal.com
