Can an employer impose a pay cut on financial grounds?

A recent case in the Liverpool Employment Tribunals has highlighted the risk for employers in unilaterally imposing pay cuts on employees in response to a downturn in business.

Mr Decker was a branch manager for a recruitment agency, Extra Personnel Logistics, specialising in driver recruitment for the logistics industry in Merseyside. He commenced employment in December 2008. On commencing his employment he worked 40 hours a week flexibly between 7.00 a.m. and 7.00 p.m. Monday to Friday. In July 2015 it was agreed that his working hours would be reduced to 32 per week. It was also agreed that he would be released from on call duties, other than covering holidays and emergencies.

On 20 February 2017 he was asked by the managing director, Brad Richardson, to reduce his working days from four to two (32 to 16 hours), equating to a loss of £205.95 per week. The following day Mr Richardson wrote to him, confirming the reduction to Mondays and Tuesdays only. He gave the reasons as the loss of two contracts and the industry market being quiet. The letter also informed him that the consultation period for the contract would run until 6 March, following which a meeting would take place the following day. Mr Richardson also referred to an offer of six additional hours doing sales which, although it had been declined by Mr Decker, would remain open for discussion.

On 3 March Mr Decker wrote to Mr Richardson to inform him that, due to his financial circumstances, he could not afford any reduction in his existing working hours and that he was willing to discuss matters further at the meeting on 7 March.

At the meeting Mr Richardson said that, as a result of the resignation of Mr Decker’s daughter in law (who had also been offered a reduction in working hours), he could offer a further eight hours per week. However, that was subject to him resuming on call work. Mr Decker said that he would accept the reduction from 32 to 24 hours if his day rate was increased from £102.97 to £110.00, on the basis that this would assist the employer in achieving its cost-cutting objective.

No agreement was reached at the meeting.

an employee may well be reasonable in resisting pay cuts, but that does not automatically make it unreasonable to dismiss and re-engage them

In these continuing hard times, with profits squeezed and businesses facing collapse, it is becoming increasingly common to consider salary reductions as a cost saving exercise. Although some consider it a risky option, given the prospect of employment tribunal claims for unfair dismissal and breach of contract, it is well established that dismissal for refusal…

newsletter – pay reductions

Especially when times are tough, employers sometimes seek to impose wage reductions or other substantial adverse changes to terms of employment of staff.  Of course from an employment law point of view there is generally no problem if the employees concerned agree, however reluctantly, to accept the change(s) – which of course they may well…