Can my employer reduce my wages?

During times of financial difficulty, some businesses may try to reduce their overheads by reducing the amount that they pay in employee wages. But is this legal? Can an employer reduce an employee's wages? And if so, under what circumstances? In this article, we will try to help answer some of these questions from both an employee and an employer point of view.

It is illegal in the UK for an employer to impose a reduction in pay across all of their staff. For a pay cut to be imposed on any employee, their consent must first be given in order for the reduction to be legal. This means that a pay cut can only be unilaterally applied across a workforce if each staff member agrees to it.

If an employer tries to reduce the pay of an employee without having first obtained their agreement, the employee will be entitled to take action as outlined below.

Legal Rights of an Employee

An employee who has had their pay reduced without having given consent is legally entitled to take any of the following courses of action:

• Resign from their job
• Initiate a claim against the employer for constructive unfair dismissal
• Continue to work in their job "under protest" while initiating a claim for compensation to cover their loss of earnings that have resulted from the enforced pay cut.

With this in mind, an employer who wants to reduce the amount of money that an employee is paid should first consult with the employee and arrange agreement in advance, so that the required change can be arranged based on the employee's consent.

Can an employee refuse a request to reduce their pay?

An employee is entitled to refuse a request that is made of them to reduce the amount of money that they are paid. If a refusal is received, the employer must decide whether to terminate the contract of employment by issuing the contractual period of notice.

Following the termination, the employer can then offer a new employment contract to the employee that reflects the reduced level of wages.

It is important that employers are aware of their legal duty to staff. If reduced pay requests are to be made to multiple employees, the employer has a legal obligation to consult with the employee representatives or trade union regarding the proposal.

If the employer does not legally and properly follow this process, large compensation awards can be sought by the staff affected.

Terminating Employee Contracts

An employee whose employment contract is terminated on the grounds of refusal to accept a pay decrease may still be entitled to pursue a compensation claim for unfair dismissal. This is the case even if the employee has gone on to accept a new contract offered by the employer.

The likelihood of an unfair dismissal claim being successful following an enforced reduction in wages will depend on a variety of factors, including the following:

• Whether the employee can prove that there were just and substantial business reasons for needing to reduce the employee's wages;
• Whether the employer had engaged in meaningful and thorough consultation regarding the pay cut;
• Whether the employer thoroughly considered the disadvantages that the pay reduction would have on the employee and whether such disadvantages outweighed the business advantage;
• If the reduction applied to multiple employees, what proportion of then accepted the pay cut?
• Whether the employer had alternative options to reduce the overheads of the business without resorting to the wage reduction;
• Whether the employer responded in a reasonable and legal manner to objections raised by employees.