Employment Law Explained

Redundancy or Pay Cut?

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 michaelscutt@dalelangley.co.uk.

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.

2 Responses to Redundancy or Pay Cut?

  1. Peter Lawton says:

    Dear Jobsworth,

    I’m so very glad you wrote on this topic, one which impacts my colleagues and me: we work in a company that had it’s genesis in an erstwhile colony where such practices are common-place.

    Applying the vestigial legal training I have acquired along the way I have been, very roughly, pointing folks at the contract variation arguments that you ably confirm in this post. Phew!

    Mass termination and re-engagement of all employees of a Company of the size in mind would need the help of the Moses but I do not rule it out. Nor can I rule out the company going after fringe benefits and cars (all contractual, methinks)?

    But I was one of the last few people to join on a final salary pension scheme. It’s two-fifths of a pittance of course but nevertheless tied to my final salary. I and others in a similar situation would be ill-advised to accept the cut if retirement is an option in the not too distant future.

    So when the time come I will resist the duress, stand up and be counted. I suspect I may not be alone….

    P¬)

    PS – thinking of continuing my adventures in work-limbo in a blog of mine own, stay tuned…

  2. [...] has failed to mitigate their loss in not taking on the job on the reduced terms. See here for a previous blog I wrote on the subject some time [...]

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