Pay cut plans run risk of redundancy claims if firms fail to consult

Plans to cut staff wages could trigger redundancy payouts if employers do not consult staff properly, an employment expert has warned.

Last week, technology giant Hewlett-Packard announced plans to cut between 2.5% and 15% of employee pay worldwide, depending on the level of job they have, as an alternative to making job cuts.

Unite union opposed the move, and warned that pay reductions could only occur in the UK once employees had been consulted.

Simon Horsfield, employment partner at law firm Pinsent Masons, added UK firms would be acting illegally if they reduced wages without proper consultation.

He said: “You can’t unilaterally go ahead and change salaries to the detriment of employees, you need their consent. The argument that companies are making is that this is an alternative to redundancies. You need to present this as a part of package to deal with financial circumstances.”

The way a company consults is crucial, and can affect its legal status, Horsfield added. If companies considered cutting pay by terminating existing contracts and then re-engaging people at five or 10% less, firms would be wide open to redundancy claims based on collective consultation legislation.

“Employers can expose themselves to protective awards of up to 90 days of pay per employee,” he said.

Employers should give such a scheme a definite end date.

Horsfield said: “We are recommending that employers put a limited timeframe on it and give a date for reinstatement of full pay,” he said. “If they find that the financial position hasn’t improved by then, they must seek an extension from employees.”

Horsfield added that pay cuts would become increasingly common as firms struggled to cope with the recession.

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