Is it OK to change an employee’s contract?

A recent decision by the Fair Work Commission (FWC) held that an employee was unfairly dismissed when he refused to sign a new employment contract that substantially changed his terms and conditions of employment.

The case provides a useful touchstone for a common issue. An employer may seek changes to existing employees’ contracts for a variety of reasons. But what happens if the parties do not agree on the changes?

Can an employer terminate an employee for refusing to accept the proposed changes or even just for negotiating what the changes should be?

In Sheldrick v Hazeldene’s Chicken Farm Pty Ltd [2014] FWC 5820 the employer sought to change the employee’s hours of work through the inclusion of an on-call roster, and a specified number of additional hours of work, in a new employment contract.

The on-call roster provided that employees would be on-call out of hours for 13 weeks of the year and would receive an allowance of $77 per week for the weeks they were on call. The additional hours of work would involve no additional payment beyond the ordinary hours of work.

The changes appeared to have arisen because the employee, Mr Sheldrick, had not been contactable for work matters during a period of annual leave. When the employer sought to introduce the contract changes, Mr Sheldrick responded that the changes involved a significant variation to hours and he sought to negotiate the on-call roster with his employer. The negotiations broke down;the employee was suspended and then eventually terminated on the basis that there was an irretrievable breakdown in the employment relationship. 

Employee entitled to negotiate proposed contract changes

The employee filed for unfair dismissal and the matter went to a FWC hearing. The Commissioner found in favour of the employee and held that he was terminated without a valid reason. The employer’s argument – that the employee failed to follow a lawful and reasonable direction – was not accepted. Put simply, the employee could not be compelled to sign a new contract on the basis that the other employees had done so, and the on-call roster went well beyond the definition of reasonable additional hours. The employee was entitled to negotiate the proposed contract changes and the employer could not consequently claim this to be a breakdown in the relationship.

The employee was awarded nearly $8,000 to account for a six month difference in wages between his former job and his new position. 

Lesson for employers

Employers seeking to change the terms and conditions of employment contracts already in operation should consider carefully how they approach the process. An employer is entitled to negotiate changes that are agreeable to all parties; however, an employer cannot simply decide to unilaterally change a contract and discipline, or even terminate, an employee who disputes the changes.

Each individual employee will need to agree to the changes to their contract. Employees are obliged to follow the lawful and reasonable directions of their employer and may be subject to disciplinary action if they refuse to do so. However, an employee who does not agree with the proposed contract changes, in the absence of further facts, is not refusing to follow a lawful and reasonable direction.


Sarah Waterhouse, Solicitor, BlandsLaw

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