Unfortunately, since the pandemic a significant number of employees have seen their salaries reduced. We have experienced an increase in the number of employees seeking advice where their employer is attempting to enforce a pay cut.
Pay is a fundamental term of your employment contract. Failure to pay you/ pay you the correct sum will amount to a serious breach of your contract.
However, in these uncertain times, particularly when pay cuts are presented as an alternative to job losses, many are thinking more carefully about the options available to them.
Is it lawful for my employer to reduce my pay?
The general positon is that your employer cannot unilaterally reduce pay. However, a pay reduction may be lawful if your employer obtains your consent or invokes a clause in your contract of employment which allows it to vary your terms and conditions (referred to a variation clause).
The mere fact that your contract contains a variation clause does not mean that a variation to your salary will be lawful. Reliance on such clauses can be challenged in the courts.
You should consider the wording of the clause to check what scope for variation is allowed by it. Also, in exercising the clause, your employer has to behave reasonably – it must be able to show a convincing business reason for reducing your pay.
Even if your contract includes a variation clause, employers will be cautious about invoking it to reduce pay, fearing possible legal challenges, and are therefore likely to also seek your consent.
Ideally, your employer should consult with you beforehand. You should use the consultation process to gather information which will allow you to make an informed decision about your options.
You can ask questions such as:
- Why are pays cuts necessary;
- What alternatives have been considered by your employer;
- Which staff are affected;
- Will pay be reinstated, if so, by which date; and
- Will the deductions be made up, if so, by which date.
What are your options?
If your employer reduces your pay without consent or you believe it has acted unreasonably or capriciously in exercising the variation clause in your contract, you have three options available to you:
You can resign and pursue a claim for constructive dismissal.
However, in order to qualify to bring such a claim you would need to have been employed for at least two years. You would also need to issue your claim within three months of your resignation. If you are successful in such a claim, you could recover your notice pay, loss of income you have suffered as well as loss of future income.
You could continue to work but under protest.
If you opt for this route, you must communicate to your employer, in writing, that you do not accept the pay cut and that you are working under protest. This will protect your legal positon if you subsequently decide to pursue a claim to recover the loss of income suffered. There are strict time limits for bring such claims. You must issue your claim within 3 months from the date of the last deduction.
If you do not communicate your objections, you could be deemed to have accepted a permanent reduction to you pay.
Accept the pay cut.
This might be a difficult decision but in light of the uncertain economic climate you may consider it the only viable option available to you. It is, after all, better to have a job than no job and easier to find a job if you are already in employment.
Even if you decide to accept the pay cut, there are still safeguards you can put in place to protect yourself, including making it clear that you are only accepting a temporary cut in pay.
What can my employer do if I reject a pay cut?
Your employer might dismiss you and point to the potentially lawful reason of ‘some other substantial reason’ to try and justify your dismissal. This may give rise to an unfair dismissal claim. To bring such a claim you will need to have been employed by the company for at least two years and you must issue your claim within three months of your dismissal.
Your employer could also terminate your employment but then immediately offer you a new contract on the lower salary. Even if you accept the new contract you would still be able to bring a claim for unfair dismissal and claim the loss in pay.
It is very likely that you will not be the only employee affected, you are stronger together, so it’s better to group with other affected employees and decide on a collective approach on how to deal with your employer. This may give you more leverage to resist a pay cut and or negotiate the terms and scope of the proposed reductions.
If you decide you cannot accept the pay cut, and have no option but to leave, you may want to explore the possibility to leaving with a redundancy payment. You will need to show that you positon has been made redundant, your employer might not agree with your assessment.
You should seek advice as early as possible, this will help you determine what course of action is most advantageous for you.