Is it illegal to cut wages without any consultation?
Many construction firms have announced that they are cutting employees’ pay, in addition to furloughing workers. But do employees have any recourse if their employer decides to cut wages without any consultation? Emma Burrows explains.
During these challenging times employers are taking a number of measures to alleviate the effects of covid-19 on their business. What happens if an employer decides to cut wages without any prior consultation? Will they be acting in breach of contract?
The first thing to note is that while some businesses are taking the decision to cut pay, generally this is a top-down measure, in other words those at the top are taking a large slice of the cut and immediately relieving cash flow issues. Other measures that we’re seeing include employers asking employees to sign up to voluntary measures such as taking unpaid leave or reducing their hours. There is also, of course, the option of furloughing employees under the Coronavirus Job Retention Scheme (CJRS).
What happens though if the employer bypasses alternative options and imposes a unilateral decision to cut wages?
This is highly likely to be a breach of contract. Before changing terms and conditions of employment an employer is under a duty to consult the employees about the changes and, ideally, to obtain their agreement to such changes. In order to argue that the changes are fair, if it has not been possible to get the individual consent of the employees concerned, the employer will have to show that it has good business reasons for making the change and also that the employee has been consulted about the changes.
Employees who have new terms and conditions imposed upon them have a number of legal options in bringing a claim.
If the new terms and conditions are simply notified to them, they have the right to claim that their existing contracts have been breached. An employee can therefore remain in their employment and bring a claim for breach of contract, claiming financial damages assessed on the difference between the salary and benefits that they would have received under the old contract and the salary and benefits they will receive under the new one.
What are ‘good business reasons’?
An employer could seek to defend such a claim on the basis that the changes to terms and conditions were made for good objective business reasons and have been implemented fairly.
Reducing salaries in order to keep the business afloat in these uncertain times could potentially be a good business reason, though an employer would have to show that it had also explored other options and explain why it had decided not to make use of the government’s furloughing scheme.
Consultation will be key to an argument that the changes have been implemented fairly so a complete failure to consult will defeat any fairness argument on the part of the employer.
Given the nature of the times however, and the potential job insecurity which many people will be anticipating or experiencing, it’s unlikely that many employees will be bringing claims for breach of contract against their current employers, though not impossible.
In the meantime, employers should try to do the right thing. Any changes to contracts, whether they relate to salary, sick pay entitlement, pension contributions, or indeed anything else, should be explained to the employees concerned and proper attempts to gain consent should be made.
What about holidays?
Holiday is an issue which employers are increasingly having to think about.
Many are stipulating that a proportionate amount of leave should be taken over the coming few months in order to avoid the situation where, once restrictions are lifted, everyone comes back to work wanting to take a large amount of accrued annual leave at the same time.
Although it’s not possible for employees to take holiday in the usual way, it is important for them to take a break from work in order to avoid stress or burnout during these difficult times.
An employer is under a duty to protect the health and safety of its employees and stipulating that some holiday is taken over the coming months is unlikely to be found to be unreasonable.
The CJRS has been welcomed by employers as a way of helping to keep their businesses viable in the long-term.
However, furloughing staff is not without its issues. It won’t always be obvious which staff should be furloughed and which should continue working, and many employers are getting round this problem via a rotation of staff every three weeks.
Staff who have been furloughed may feel that they are being treated less fairly as they are financially disadvantaged (unless their employer is topping up their salary) in comparison to those staff continuing to work. By contrast, those continuing to work may feel that they are having to work harder because they are being asked to take on the duties of those who have been furloughed (though, strictly speaking, this should not be the case).
It is important that employers have fair and transparent reasons for their furlough selection processes.
Emma Burrows is a partner at Trowers & Hamlins.