The last 14 months have been financially challenging for employers of all sizes, but it should not be used as a convenient excuse to enforce pay cuts.
The coronavirus (Covid-19) pandemic has forced many organisations to restructure and rethink how they operate as they battle to overcome huge losses.
Millions of jobs have been lost worldwide and many businesses, including some well-known UK names, have ceased trading.
The economic situation has meant countless employers have had to implement much-needed cost-cutting measures. It has inevitably had a knock-on effect on staff wages.
Last month the publisher Reach was reported to have settled with a small group of staff who lodged an employment tribunal claim after their pay was cut by 10 per cent at the start of the Covid-19 pandemic (1)
The move was said to have been part of a package of cost-saving measures introduced after a fall in advertising and circulation.
Any proposed reduction of salary in the current climate, in fact at any time, is always likely to be contentious and face resistance.
An employer can cut employees' pay if they are consulted and then consent to the change to their employment contracts. Good communication and following a fair process is essential in such situations.
Employees may agree to a salary cut if the reasons for it are openly explained, and it is made clear it is necessary as the only realistic alternative is likely to be redundancy.
An employer can make a change ('variation') to an employment contract if: (2)
A business can force a new contract on its employees, although it should be a last resort .
British Gas owner Centrica is reportedly on track to save around £100million thanks to its restructuring, including the 'firing and rehiring' of thousands of its staff (3)
The new employment contracts will require engineers to work an extra three hours a week for a total of 40 hours, and they will not be paid more to work on weekends and public holidays.
Unions have claimed that under the new contracts, workers will suffer a 15 per cent pay cut, something which British Gas denies.
If employees do not consent to a proposed cut in pay, an employer can choose to dismiss them before rehiring them on new contracts, with the lower rate of pay. But the employee must be given their contractual notice of dismissal and rehired immediately after it has ended. It is a controversial move that is known as ‘fire and rehire’ (4). Employers will have to demonstrate a legitimate business need for implementing it and be able to show that there was genuine consultation with the affected staff, as it can lead to legal action. An employee who has their employment contract ended in this way may challenge the decision, because they believe it amounts to an unfair dismissal. (5) If a business wishes to dismiss and rehire 20 or more employees, it must follow the statutory consultation procedures for collective redundancies (as the relevant definition of redundancy for the purpose of collective consultation is a ‘dismissal for a reason not related to the individual concerned.) (6)
Research found that almost a fifth of employers had instituted pay cuts since the pandemic hit and nearly a third of the remainder were prepared to do so (7)
For any employer considering such a move it is important to be honest and open with staff. Explain the situation in as much detail as possible, go through all of the options the business has explored before reaching the decision to cut pay, and answer any questions and fairly address any concerns an employee has.
(1) Employment tribunal claim after pay was cut by 10% https://pressgazette.co.uk/reach-settles-staff-who-lodged-claim-10-covid-pay-cut/ [Internet] www.pressgazette.co.uk [Cited 24.5.21]
(2) An employer can make a change to an employment contract. https://www.acas.org.uk/changing-an-employment-contract [Internet] www.acas.org.uk [Cited 24.5.21]
(3) British Gas owner Centrica is reportedly on track to save around £100million https://www.thisismoney.co.uk/money/markets/article-9561607/British-Gas-owner-save-100m-thanks-fire-rehire.html [Internet] www.thisismoney.co.uk [Cited 24.5.21]
(4) ‘fire and rehire’ https://commonslibrary.parliament.uk/research-briefings/cdp-2021-0066/. [Internet] www.commonslibrary.parliment.uk [Cited 24.5.21]
(5) An employee who has been ‘fired and rehired’ may challenge the decision https://castleassociates.org.uk/employment-law-a-z/unfair-dismissal [Internet] www.castleassociates.org.uk [Cited 24.5.21]
(6) If a business wishes to dismiss and rehire 20 or more employees, it must follow the statutory consultation procedures for collective redundancies https://www.acas.org.uk/sites/default/files/2019-03/Handling-large-scale-collective-redundancies-advisory-booklet.pdf [Internet] www.acas.org.uk [Cited 24.5.21]
(7) A fifth of employers had instituted pay cuts since the pandemic hit https://www.thetimes.co.uk/article/more-employers-ready-to-cut-pay-htwzlzfr6 [Internet] www.thetimes.co.uk [Cited 24.5.21]
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