Managing your overheads or risking it all?
The recession has focussed everyone’s attention on pay. Celebrities, bankers, MPs – in fact most high earners other than Premier League footballers – are all being badgered to take pay cuts. Kate Garraway, Jonathan Ross, Jeremy Clarkson, Lorraine Kelly and others are all facing the remuneration committee from hell; the general public.
Why is this? Are we all being forced to reduce the amount we take home due to the pressure being applied by the economic climate to our employers? Fact and anecdote would suggest that this is the case. As far back as last January workers at Vauxhall were told by their bosses ‘we are looking at less work and less pay’. GMTV presenters are being asked to take less holiday and work more hours – presumably so that the cost of cover is reduced too. Jonathan Ross ... well he may just have had some performance issues!
We all know of cases where people have reduced their hours rather than take redundancy, the thinking being that it’s for the common good and it’s better to have some job than no job, or a job with a business that won’t survive the recession.
So, it’s becoming quite a common occurrence for employees to have their pay, hours, benefits - or all forms of reward- reduced. What is the legal position on this though? I have been asked many times recently whether employers can unilaterally impose a pay cut. The answer is, of course, no. The employment contract cannot be unilaterally changed by either party without the agreement of the other. Any attempt by an employer to reduce salary without consent, effectively a breach of contract, will entitle the employee to resign and claim constructive dismissal. They might, however, work under protest and attempt to recover losses via a lawsuit. Dismissing someone without following due process could be construed as unfair dismissal, especially where undue pressure has been applied. The current maximum award for unfair dismissal is £66,200.
Recent research suggests that 40% of employees are likely to agree to a cut in pay in the current climate, but what are the options for dealing with the other 60%? If the employer wants to avoid redundancies, as a good employer should for all sorts of reasons, but has lost the goodwill of the staff, then the only alternative is to terminate contracts with due notice and offer new ones at a reduced rate of pay. It is always best to discuss options with staff or their representatives and depending on the numbers of people involved there is also a statutory obligation to consult. Bear in mind, though, that employees who have their contracts terminated in this way may still pursue a claim for unfair dismissal which will be considered taking a number of factors into account including:
- Whether the employer can establish a substantial business reason for the proposed change;
- Whether the disadvantages that the employee would suffer as a result of the changes were properly considered and whether these outweighed the advantages to the employer in implementing the changes;
- Whether the employer had engaged in genuine and meaningful consultation in relation to the reduction in salary;
- Whether a majority of the employees accepted the changes;
- Whether other options for the reduction of overheads were genuinely considered by the employer;
- Whether the employer acted reasonably in all the circumstances when responding considering objections.
Our advice? Talk to your employees and fully involve them in any decisions – you need them on your side and ready to work their socks off at the first sign of recovery.
John Spoerry Chartered FCIPD, is director of the independent, Buckinghamshire based, Daedis Human Resources Consultancy www.daedishr.co.uk or info@daedishr.co.uk