How to change an employee's contract terms — and what changes on 1 January 2027

Almost every small employer needs to change somebody's terms eventually. The rota that worked with four staff does not work with nine. A shift premium that was affordable in 2022 is not affordable now. A role has drifted so far from its job description that the contract describes a job nobody does any more. The instinct is to write to everyone, explain the reasoning honestly, and set a date the new arrangement starts.

That is not a variation. That is a unilateral change, and it is one of the more expensive mistakes in small-firm employment law — because a contract is an agreement between two parties, and one party cannot rewrite it alone.

There are three lawful routes. One of them stops working on 1 January 2027.

Route one: agree it, and write the agreement down

This is the route that works, and it is the one owners skip because it feels slow. Explain the business reason before you propose anything, not after. Set out what is changing, from when, and what the employee gets in return — because something in return is what turns an imposition into a deal. It does not have to be money: a rota published four weeks ahead, an extra day of leave, a one-off payment for the disruption, or a review date written into the letter will often do it.

Then get it in writing. A short letter confirming the new term, signed and returned, is all it takes. Where the change affects one of the particulars an employer must give in writing — pay, hours, holiday, job title, place of work — you also have to issue a written statement of the change, and it must go out no later than a month after the change takes effect.

If someone refuses, do not treat the refusal as the end of the conversation. Ask what would make it work. Most objections to a rota change are really childcare objections, and most objections to a pay restructure are really trust objections. Both are solvable; neither is solved by a deadline.

Route two: the flexibility clause you probably do not have

Some contracts contain a variation clause reserving the right to change terms. They are far weaker than employers assume. Tribunals read them narrowly and against the party that drafted them, and a clause broad enough to cover any change to any term at any time is the one most likely to be read down to almost nothing.

There is a useful distinction in how they hold up. A genuinely worded mobility clause, used to move someone between two named sites eight miles apart, applied reasonably and with notice, will usually work. A general right to vary will not support a cut in pay or a reduction in guaranteed hours. Pay is the term the courts protect most firmly, because it is the core of the bargain.

A variation clause is not a licence. It is an argument you will have to win in front of a tribunal, and the broader it is drafted the weaker it gets.

Route three: dismiss and offer the new terms

If agreement genuinely fails, the last resort has always been to dismiss on notice and offer re-engagement on the new terms. It is a real dismissal. It needs a fair reason — normally some other substantial reason — and it needs a fair process, including individual consultation and a right of appeal.

Since 18 July 2024 that process has been governed by a statutory Code of Practice on Dismissal and Re-engagement, which treats the tactic as a genuine last resort and expects a long, documented, good-faith attempt at agreement first. Where an employer unreasonably fails to follow the Code, a tribunal can increase the compensation it awards by up to 25%, and since 20 January 2025 that uplift reaches protective awards in collective cases as well.

The 20-employee trigger, and why it got much more expensive in April

If you propose to dismiss 20 or more employees at one establishment within a period of 90 days or less, collective consultation obligations bite — and dismissing in order to re-engage on new terms counts towards that number. In practice that means informing and consulting appropriate representatives, arranging an election if you have no recognised union, and observing a minimum consultation period of 30 days where 20 to 99 employees are affected, or 45 days where 100 or more are.

The price of skipping it changed on 6 April 2026. The maximum protective award a tribunal can make for a failure to consult collectively doubled from 90 days' gross pay per affected employee to 180 days. On a small payroll that is not a rounding error.

What the arithmetic looks like

Illustrative figures, but the shape is real. A 22-person business wants to remove a Sunday premium worth about £26,000 a year across the team. Average gross pay is £550 a week. It writes to everyone, imposes the change from the following month, then dismisses the six who refuse and re-engages four of them on the new terms.

Because 20 or more employees were in scope and no collective consultation happened, the protective award exposure is up to 180 days' gross pay each — roughly £14,140 per employee, or about £311,000 across 22 people. On top of that sit individual unfair dismissal claims, and a possible 25% uplift for unreasonably ignoring the Code. The saving being chased was £26,000.

No tribunal hands out the maximum as a matter of course, and most of these situations never reach one. But a business that consults properly for 30 days and reaches agreement with 19 of its 22 people banks most of that £26,000 and carries almost none of the risk. The slow route is also the cheap route.

What changes on 1 January 2027

This is the date for the diary. Under the Employment Rights Act 2025, dismissing an employee because they will not agree to a change to certain core terms becomes automatically unfair, and no qualifying period of service is needed to bring the claim. Day one, first shift, same right.

The protected list — described as restricted variations — covers contractual pay, the required number of working hours, pension entitlements, shift times and shift length, and time off entitlements, with further terms to be set by regulations. Imposing a new unilateral flexibility clause on an existing employee is caught too, which closes the obvious workaround before anybody tries it.

There is one exception and it is narrow. The employer has to show genuine financial difficulties affecting its ability to carry on the business as a going concern, and that the variation was unavoidable in the circumstances. It would improve our margin will not be enough. Nor will the market has moved.

The commencement date shifted along the way: these provisions were originally trailed for October 2026 and now land on 1 January 2027, aligned with the reduction in the unfair dismissal qualifying period. If you have a change you have been putting off, the window to make it under the current rules is this autumn — and it should still be made by agreement, because the Code and the 25% uplift already apply today.

The checklist for this week

Read the contracts you actually issued, not the template you think you use. Note which of the restricted variations any planned change touches. Count how many employees are in scope, and whether that number reaches 20. Write the business reason down in plain English before you speak to anyone. Propose, do not announce. Offer something in return. Confirm every agreement in writing within a month. And keep a note of every conversation, because in this area the file is the defence.

If you are rebuilding the paperwork at the same time, the employee handbook nobody reads covers what else belongs in it, and how to give an employee a written warning sets out the kind of process discipline the same tribunal will be looking for.

Common questions

Can I change an employee's hours without their agreement?

Not safely. Hours are a contractual term, so changing them needs agreement, a genuinely worded clause that actually covers the change, or dismissal and re-engagement as a last resort. Imposing new hours and hoping nobody objects creates two risks at once: a breach of contract claim, and a constructive dismissal claim from anyone who resigns in response. From 1 January 2027 it becomes harder still, because the required number of working hours is one of the restricted variations, and dismissing someone for refusing becomes automatically unfair from day one of employment. If an employee works the new hours without protest for a long period they may be treated as having accepted the change, but that is a defence you are relying on rather than a plan.

Does my contract's variation clause let me cut pay?

Almost certainly not. Tribunals construe variation clauses narrowly and against the employer who drafted them, and the broader the wording the less weight it carries. A clause permitting a move between two named sites a few miles apart will often hold. A general right to vary any term at any time will not support a reduction in pay, because pay is the core of the bargain and the term courts protect most firmly. If you need to reduce pay, treat it as a negotiation with something offered in return, document the agreement, and take advice before going anywhere near dismissal — from 1 January 2027 contractual pay is a restricted variation and dismissing to force the change through becomes automatically unfair.

What is the financial difficulties exception from January 2027?

It is deliberately narrow. To rely on it an employer will need to show that its financial difficulties were affecting, or were likely to affect, its ability to carry on the business as a going concern, and that the variation was unavoidable in the circumstances. That is a viability test rather than a profitability test. Wanting a better margin, losing a large contract or facing rising costs will not on their own get you there — and you will need contemporaneous evidence: management accounts, cash-flow forecasts, correspondence with your lender, and board minutes recording which alternatives you considered and why you rejected them. Build that file before you act, because a tribunal will ask what you knew at the time.

Do I have to consult collectively if I only employ 15 people?

No. The collective consultation duty is triggered where an employer proposes to dismiss 20 or more employees at one establishment within a period of 90 days or less, and dismissing in order to re-engage on new terms counts towards that number. Below 20 you consult individually instead, which is not a formality: the statutory Code of Practice on Dismissal and Re-engagement applies at any size, and an unreasonable failure to follow it lets a tribunal increase awards by up to 25%. Watch the counting, though. Separate waves of change inside the same 90-day window can aggregate, and an organisation-wide threshold in place of one establishment is expected to follow in 2027.