Weekly dilemma: salary reductions

Q Given the current economic climate, is it possible to lawfully reduce employees’ salaries and, if so, what do I need to consider?

A Over the past 12 to 18 months, the majority of businesses have had to consider making redundancies. But to avoid the expense of redundancy and in an attempt to retain talented staff, many employers have looked at implementing alternative cost-saving measures.

Historically, tribunals have seen implementing a reduction in salary as a draconian measure. But, from my experience over the past couple of years, they have become receptive to this measure if it is carried out as a genuine means to avoiding redundancy.

The first step to consider is whether there is a sound business reason for implementing the change. An employer doesn’t need to demonstrate that the change is integral to the survival of the business, but simply that there is genuine business reasoning behind it. They then need to demonstrate that they have carefully considered all the alternatives and that, having done so, the implementation of a salary reduction is reasonable.

The next step is to consult with all affected employees and look to gain their consent. This process should be documented with clear reasons for the proposed changes being provided to employees. Employers need to consider that the consultation process is a two-way exercise, and employees’ opinions should be sought and carefully considered.

Having completed a thorough consultation exercise, employees should be invited to confirm whether or not they are willing to provide their consent. As a general rule, where the majority of employees agree, this places the employer in a stronger position at a later stage when arguing that it was unreasonable of the dissenters not to provide their agreement.

Those that don’t agree should be informed that the business intends to implement the changes, and that if they are unwilling to provide their consent, they will be invited to a dismissal meeting.

Ultimately, if consent is not obtained, employees should be dismissed with notice and offered re-engagement upon the amended terms. Therefore, if the business faces claims for unfair dismissal, it will be well-placed to argue the dismissal was both procedurally and substantively fair for some other substantial reason.

From recent experience, employers will be encouraged by the positive response from employees who tend to view these changes as the lesser of two evils, given the alternative of losing their job at a time where vacant positions are in short supply.

Russell Brown, partner, Glaisyers

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