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Can an employer vary the terms of an employment contract?

Updated: Apr 16, 2023

Hello, I am Mr. Chin from CCS and thank you for watching this AI-created video clip, "Can an employer vary the terms of an employment contract?"


Contracts are essential for conducting business and entering into any legal agreement. Contracts can be hard to understand, and you must pay close attention to the details to ensure they are legal.

In this video, we'll talk about everything you need to know about contracts, including variations or modifications to the contract terms.

Section 1: Offer and Acceptance

Two parties must have an offer and acceptance for a legally binding contract. An offer is a proposal that may lead to an agreement when accepted.

Once an offer is accepted, the offeror is bound by law to fulfill their promise.

The contract is valid unless there is a failure of some condition on which it depends or fraud on the part of one party.

Both parties cannot rely on their mistakes to claim the contract was null.

Section 2: Intention to Create Legally Binding Relations

For a contract to be valid, the parties must have the intention to create legally binding relations.

In Solle vs Butcher, Denning LJ stated that the contract is valid once the parties have agreed with sufficient certainty on the same terms on the same subject matter.

The surrounding circumstances of the contract will be of no effect when the terms of the contract are precise.

When the contract terms are ambiguous, the surrounding circumstances, including the advertisement, may be referred to in construing the written words of the contract.

Section 3: Variation or Modification of the Terms of the Contract

A variation of a contract is simply a subsequent amendment and/or change in the contractual terms agreed upon by the parties.

However, the terms and conditions of an employment contract can only be varied with the consent of both parties.

Suppose an employer insists on a unilateral variation. In that case, it will be a breach of contract, and the employee is entitled to regard the contract as terminated and themselves as being dismissed. This is referred to as "Constructive Dismissal."

For example, let's say the employer tries to make a unilateral change to the terms of employment, like a cut in pay or other perks, a big move to a new place of work, or a demotion. In that case, this will entitle the employee to resign.

However, just because an employee refuses to accept a variation does not mean they can exercise veto power over any new proposal. According to the statement made by Gopal Sri Ram, a Court of Appeal judge in Colgate Palmolive (M) Sendirian Berhad vs Yap Kok Foong, the non-existence of a retirement age clause in an employment contract does not prevent an employer from retiring an employee at a specific retirement age.

Such action would not necessarily be considered a dismissal without cause or excuse.

As a final remark, the employer must act reasonably for variation or modification of an employment contract; the employee must be informed and consulted fully and properly.

Any objections or suggestions for alternatives the employee provides to the employer must be considered fairly and reasonably.

The employer must also establish proof that such changes are bona fide and in the best interest of their business.

It has been well established that, under Industrial law, the employer has every right to conduct his business in any manner for economy or convenience, provided he acts bona fide.

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