Flexible contracts a risk for employers

Employers who fail to obtain employees’ consent when implementing workplace changes could face litigation, according to a workplace law specialist.


People & Culture Strategies managing director Joydeep Hor says contract variations, such as demotions and salary freezes, are only acceptable with employee consent.


“Many employers are using contract variations, such as reduced hours or salaries, in place of redundancies as they try to bring further flexibility to their workplace,” Hor says.


According to a new study by Regus, which surveyed 16,000 senior business managers around the world, 81% of small businesses have embraced flexible working.


But Hor says there are risks associated with this.


“If employers step too far, it’s possible an employee could claim a fundamental breach of their contract and lodge an adverse action claim, suing their employer for damages,” he says.


Hor says while a certain amount of variation is permitted in most contracts, any variation above 20% of an employee’s normal duties is risky.


However, exactly how much variation is permitted within an employee’s contract is a grey area.


“Most contracts include a clause allowing employers to vary employees’ duties from time to time in a subtle way,” he says.


“For example, photocopying documents may not explicitly be in your job description, but it’s not usually recognised as an unfair variation.”


According to Hor, the biggest mistake employers make in contract variations is failing to appreciate the significance of change from an employee’s point of view.


“While business owners may feel they’re only affecting small changes to help their business survive, it’s risky to assume the employee… is going to consent,” he says.


“Essentially, employers need to understand that sound people management isn’t divorced from the law. Rather, it goes hand-in-hand with the law.”


“If you’re making big changes – with the best possible intentions – you’ve got to see more than just names on a balance sheet.”


Hor points out that provisions in the Fair Work Act enable employees to challenge any variations made to the terms and conditions of employment they claim are to their detriment.


The ability to make an adverse action claim is open to anyone, regardless of remuneration levels, so employers must be vigilant in communicating openly and honestly with their employees.


“In my experience, employers who are able to communicate changes effectively to employees are going to be far better able to implement change,” Hor says.


Hor offers employers some key tips:

  • Ensure all employment contracts and policies are detailed, accurate and provide the necessary flexibility.
  • Document all conversations, changes and agreements. If a deal is done on a handshake, and variations aren’t recorded in writing, they could be open to debate.
  • Don’t use standard templates for employment contracts. Look at what other employers are doing successfully to help structure their employee base.
  • Maintain transparency and proper communication, and give people time to think things through. Have an open mind to feedback and be prepared to negotiate changes.


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