03 June 2016 #Employment
In the recent case of Globe Motors Inc v TRW Lucas Variety Electric Steering Ltd, the Court of Appeal held that a contractual clause requiring variations to be in writing did not prevent a variation being agreed by a different method i.e. verbally or by conduct.
The case involved a long term supply agreement which contained a clause specifying that any variation of its terms was to be in writing and signed by the parties. Although not the main issue in question in this case, the Court of Appeal considered the validity of this clause. It recognised that the overriding principle of freedom of contract means that parties are free to include terms regulating the manner in which the contract can be varied, however, it could find no principled basis on which to restrict the manner of a contract variation. It ultimately found that parties are free to vary the contract by a different method if they so wish despite the presence of a clause to the contrary.
Whilst this case was not brought in an employment context, its principles are nonetheless relevant to employers and the contracts they enter into. However, employers should not be downing drafting tools and ditching such clauses following this case! Firstly, the comments made by the Court of Appeal were obiter which means they are not binding, although they give a good indication of how courts may interpret such clauses. Secondly, from a practical perspective, it remains important for parties to clearly set their preferences for variations and, obviously, written variations will be much easier to evidence should there be a dispute. Finally, in the event that an employer is accused of varying an agreement verbally or by its conduct, the presence of such a clause may still assist it in demonstrating that no variation was agreed. Therefore, the message from this case is really for parties to be wary of inadvertently agreeing variations to contracts in the mistaken belief that changes can only be in writing, rather than any message to alter their drafting in this regard.