Not an enviable choice to be faced with, but one that an increasing number of people seem to be having to make, or have foisted upon them, in industry. It is a practice that doesn’t seem to have caught on here in the City where swingeing headcount cuts still rule supreme when an employer wants to cut costs. I’ve written many times in this blog before about the redundancy process and selection criteria and the claims that can arise when employers get it wrong. However, what must an employer do if they decide that a pay reduction is preferable to a cull?
It’s not an easy option because any variation in an employee’s pay, if imposed unilaterally by the employer, is a breach of contract and the employee would be entitled to sue for breach of contract and/or unlawful deduction from wages. Consequently the employer will need to obtain the consent of affected staff before proceeding and, particularly in unionized workplaces, this is unlikely to be given readily.
Some employers take the step of terminating all employment contracts and then re-employing the same staff on reduced terms. This is highly risky because it can give rise to claims for redundancy, unfair dismissal and breach of contract if not handled properly. An employer would need to consult with affected staff and persuade them that the only alternative to pay cuts was job losses, in order to obtain consent. How long the consultation period would have to be would depend upon how many employees were involved and a prudent employer would want to observe the provisions of the Trades Union and Labour Relations (Consolidation) Act 1992, which provides for fixed periods of 30 or 90 days’ consultation where more than 20 or 100 staff are involved.
For smaller employers the process of obtaining consent is going to be viewed as just as onerous as undertaking a redundancy exercise and that might make the whole process unviable. Having said this, the new Employment Act 2008, which comes into force in April, repeals the current statutory dismissal procedure that applies on redundancies as to all other dismissals, and that may persuade more employers to go down the route of pay cuts. I’ll be covering more issues arising from the new legislation in future posts.
If you need advice on any issues arising here please feel free to call me on 0207 464 8433 or email me at firstname.lastname@example.org.
What would you do if faced with this choice? Please answer the poll below.
A slightly different version of this post will appear in the “Docklands” and “Peninsula”newspapers week commencing 2nd March.