by David Cabrelli, Professor of Labour Law, University of Edinburgh

Should the law lend legal validity to a clause in a contract that empowers one of the parties to unilaterally vary its terms? And should there be any difference in the applicable rule if the contracting party who has the power to vary is in a superior bargaining position, such as an employer in an employment contract? These are the two principal questions that this post will consider.

In the view of John Stuart Mill, everyone should have the right to consent (or not to consent) to change their mind in the future and to have that position respected by the law.[1] Up to a point, Mill’s position reflects the current law, since the point of departure is that contracts can only be varied by mutual consent, irrespective of whether the bargain concluded is a commercial contract[2] or employment contract.[3] However, there is an exception. For example, in the case of a unilateral variation clause – where the employee has exercised their autonomy to agree to a provision that permits the employer to change the terms of the contract of employment without the approval of the employee – contract law recognises that mutual consent is superfluous.[4] This is controversial for the reason that the employee is in an unequal bargaining position vis-à-vis the employer as well as subordinate to the employer and subject to the latter’s commands. Thus, there is the temptation to reform the law to invalidate unilateral variation clauses. But in this post, I make the claim that this temptation should be resisted, albeit not as a matter of principle, but for doctrinal reasons.