For many workers, being required to work from home and avoiding the daily commute  has been one of the very few welcomed consequences of the pandemic.

Many employers have embraced the “new-normal” and even seen their performance improve, with businesses such as Reddit and Zillow announcing that employees can now work from home permanently.

However, it is not all good news. Google recently made all the wrong headlines after  announcing that they had developed a pay calculator that lets employees see the effects of working remotely or moving offices, suggesting possible pay-cuts for those continuing to work from home and no longer having to commute. One Cabinet minister has even suggested civil servants should have their pay reduced if they refuse to return to the office after working from home for so long during the pandemic.

In a recent survey by CIPHR, 68% of the businesses asked who are currently paying location allowances are considering cutting pay for staff who opt to work from home. 53% reported making  savings by staff working from home. 86% had already suspended, temporarily reduced, or removed payments such as location premiums.

Are pay cuts like this lawful?

An employee’s pay is a fundamental term of any employment relationship. The general position is that an employer cannot unilaterally change such a term without first obtaining the employee’s agreement. Where this is not obtained, the circumstances will likely give rise to allegations of an unlawful deduction from wages, a reach of contract and, if the employee resigns in response to the breach and has over two years’ continuous service, constructive unfair dismissal.

There are some exceptions to this rule where the contract of employment authorises the particular change to be made. This can occur in three ways:

  1. Where it is possible to interpret a term sufficiently broadly to accommodate the change;
  2. Where there is an express right for the employer to make changes; or
  3. Where the contract of employment gives the employer a general power to vary the terms of the employment contract – a general flexibility clause.

However, given the importance of the pay clause, it is extremely doubtful that any of these options would be enough to allow an employer to unilaterally change an employee’s salary. Any ambiguity in the drafting of the contract or a flexibility clause will be resolved by a Tribunal against the party seeking to rely on it (here, the employer).

In the light of the above, changing an employee’s salary without their express consent is very risky. Of course, obtaining consent will not always be easy. Where an employee refuses to consent, employers may find it useful to:

  • consider meeting with employees to explain why the change is needed;
  • explain alternatives if no agreement can be reached;
  • listen to the employees’ concerns and consider whether the change can be agreed if it’s implemented gradually under a transitional arrangement; and/or
  • offer an incentive to help the employee accept the change.

Where an agreement is still not achievable, some employers might consider terminating the employee’s contract of employment and offering to rehire them on new terms. However, this brings with it risks of unfair dismissal if the employee has over two years’ service and there is (i) not a potentially fair reason for the dismissal; or (ii) the process followed is not fair.

What should employers learn from this?

The decision to reduce salaries for remote workers should not be made lightly and there is a real risk that affected employees will feel disappointed and underappreciated, particularly where they have worked productively from home throughout the pandemic. Then there is the risk of a tribunal claim from disgruntled staff.

28th September 2021

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