Where employers are considering implementing pay cuts for staff continuing to work from home, it is important to understand the reasoning behind this.
There are a number of potentially legitimate reasons why an employer may look to implement a pay cut. This could be because of a need to make cost savings, including to prevent redundancies; to reflect a genuine change in the type of work performed at home; or to remove an allowance which was linked to the previous workplace, such as a London Weighting allowance or travel benefit.
However, if the purpose is to disincentivise employees working from home, or is unrelated to a change in an employee’s role, a pay cut may involve greater legal risks.
The method for implementing a pay cut will depend on the terms of the employment contract. If there is no express right for the employer to reduce their salary, the employee’s consent – either express or implied – will be required. A consultation process may be needed if the employer recognises a trade union or other employee representative body, and will be good practice in any event.
Where employers do not, or cannot, obtain consent, another option is to consider terminating employment and offering re-engagement on the reduced salary. This ‘fire and rehire’ practice is currently a topic of controversy, with businesses such as Tesco and British Gas facing challenges to this practice, and a Private Members’ Bill to outlaw it making its way through Parliament. Employers taking this option must ensure they have a sound rationale and follow a fair process, including collective consultation, where required.
Failing to follow a proper and lawful process when implementing pay cuts could expose the employer to liability for breach of contract, unlawful deductions from wages, unfair dismissal and/or protective awards for failure to inform and consult. There is also a risk of industrial action if a trade union is involved.
If employees have raised health and safety concerns about returning to the workplace, imposing a pay cut for home working could be a form of unlawful detrimental treatment, entitling the individual to claim compensation. This protection is being extended to ‘workers’ from 31 May 2021.
There may also be a discrimination or equal pay risk, if home workers tend to represent a greater proportion of a protected group, such as women, older people, or those with health issues amounting to disabilities.
Clare Fletcher is a professional support lawyer at Slaughter and May