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.

My employer says there is a ‘variation clause’ in my contract. What does this mean?

Some employment contracts will contain a ‘variation clause’, which allows your employer to amend your contract in certain situations.

Your employer should only make use of a variation clause if they have a good reason - for example, the business is in financial difficulty and so your hours need to be cut to help remedy this.

Your employer is legally required to follow a fair procedure when they want to use a variation clause, and so you are still protected by your employment rights and should not be discriminated against.

In which ways can an employee's pay be reduced?

There are a number of ways in which an employer might reduce the pay of a member of their staff. This could include:

• The employer could cut the basic rate of pay
• The employer could withdraw or reduce overtime
• Bonus payments could be withdrawn or reduced
• Reductions could be made in the amount of additional sick pay that staff receive on top of their statutory sick pay
• The employer could reduce extra paid holidays that are offered to employees on top of their statutory entitlement

A pay cut could come from a reduction in working hours. If your employer needs to reduce costs, they may reduce the number of paid hours that each worker is required to do and could do this by:

• Reducing working hours so they don’t have to pay you so much
• Increasing the hours that you are required to work, without increasing your pay
• Changing your working pattern without decreasing your hours or increasing your pay. For example, your employer might transfer your working hours to a night shift without paying an unsociable hours uplift.

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.

If you don’t want to accept the change that is proposed by your employer, you have a number of steps to follow. It is advisable to put all communications with your employer in writing, so you have a record and paper trail of your discussion.

1) Inform your employer that you are ‘working under protest’

Inform your employer that you are ‘working under protest’ until a solution is reached. This formally sets out that you don’t agree to the proposed changes, but demonstrates your willingness to reach an amicable solution.

You should do this as soon as you are told about the proposed change by your employer. If you don’t formalise your objection in this way and continue to work normally, this can be seen as an acceptance of the new terms.

2) Tell your employer that you don’t accept the proposed change.

Formally tell your employer that you do not accept the proposed changes, and if you haven’t been given notice or had a consultation about the revised terms, you should state this too. You might also propose an alternative solution.

You can continue to ‘work under protest’ once you have told your employer that you don’t accept the change, to allow time for an alternative solution to be considered.

3) Try to reach an agreement with your employer.

You could explain your concerns to your employer and highlight that you aren’t able to accept the proposed changes, but that you would like to work together to reach a solution. You must try to reach an amicable solution as swiftly as possible because, in the eyes of the law, if you continue to work for a long time - even under protest - it could be taken to mean that you accept your employer’s terms.

If you cannot reach an agreement, you could consider taking your case to an employment tribunal for a breach of contract. An employment law solicitor can support you with this.

4) If you decide to resign

Before deciding to resign, it is wise to determine whether you would be better off accepting the terms offered by your employer - particularly if you think you might struggle to find a new job.

If the employer has acted unreasonable or seriously breached the terms of your contract, you might be able to take your case to an employment tribunal.

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.