Can work force me to take a pay cut without reducing my hours?

I – along with several others – have been asked by my employer to take a temporary 20 per cent pay cut due to the impact coronavirus has had on the business. 

We have been told this will run from the start of May until at least the end of July, at which point, there will be another review. 

While I realise I am fortunate in that I still have a job, I am not happy with having to take a pay cut with no form of compensation.

I have friends in other industries that have also taken a pay cut but have had their working hours reduced accordingly while others have received compensation through additional benefits or a promise for compensation at the end of the year.

Some businesses have been forced to ask their employees to take temporary pay cuts and/or reduced hours in order to get through financial difficulties created by the coronavirus

Meanwhile, some members of staff at my workplace have been furloughed which, as far as my understanding goes, means they are not working at all but will get 80 per cent of their salary via the government scheme.

I must make a decision on whether or not to accept this change – and sign a new contract – by the end of the week but I wanted to know what my rights are.

Do I have to sign the contract? Can I ask to be furloughed instead? Am I at risk of losing my job? 

Jayna Rana, of This is Money replies: Covid-19 has created a unique set of challenges for both employers and employees across Britain, while the Government has provided assistance where it can, including the Job Retention Scheme grants.  

Tough new measures were put into place almost a month ago in a bid to stop the spread of the coronavirus with the Prime Minister announcing a lockdown of the country.  

This has meant hundreds of small and large businesses have temporarily closed, while other staff have been given alternative jobs to do, pay cuts, reduced hours or have even been furloughed. In the most extreme cases, some employees have lost their jobs. 

You are one of many Britons who has been impacted by the coronavirus with regards to your employment. You are, as you have pointed out, lucky in that you still have a job and therefore a regular income. 

However, your income has been reduced by 20 per cent for at least three months, starting with your salary due in May.

While some employers have balanced this out by reducing the working hours or the workload for the staff they have have asked to take a pay cut, you have not received any correspondence to suggest this will happen, nor will you receive any kind of compensation in some way.

You are not happy with what is being asked of you, which is understandable. 

To help you decide what to do, This is Money spoke to Laura Conway, a senior associate at Wedlake Bell, and James Medhurst, a senior associate in the employment team at Royds Withy King, to find out what they think about your situation. 

Is my employer allowed to reduce my salary?

Laura Conway is a senior associate at independent London law firm Wedlake Bell 

LC: Your employer’s ability to make changes to your contractual terms, including reducing your salary, will depend upon the terms of your contract and usual employment law considerations. 

Normally, any variations to the contract (including any reduction in salary) must be agreed with you in advance.

If the contract includes the right to ‘lay-off’ i.e. for the employer to provide no work or pay for a period, then your employer may choose to exercise this; however, lay-off clauses are quite unusual, and unless your employer has the contractual right to do so, they will need your express consent.

JMIn ordinary circumstances, it is very difficult for an employer to reduce your salary without your agreement. 

However, it might be able to force you to agree to a pay cut by threatening to dismiss you if you do not agree, so long as it can show that it is reasonable to take such a draconian step. 

For example, it might be reasonable if your employer is in financial difficulty because of the coronavirus pandemic.

Even if your employer is not threatening dismissal, there are other potential consequences of refusing to accept a reduction in salary. 

Your employer might have to make redundancies or might have to fold altogether, and it is important to consider these potential alternatives before refusing to accept a pay cut.

On the other hand, some employers will be able to recover quickly when the current crisis has ended. For that reason, it is common to agree pay cuts that are time-limited, so that pay returns to its original level on a specified date. 

If your employer has proposed a permanent salary reduction, you might want to ask whether it can be time-limited in that way, although your employer does not have to agree to this. 

Should I ask for a reduction in hours? 

JM: One employer does not have to make the same decision as another, but each employer does have to treat its own employees in a non-discriminatory way. 

It can treat employees in one department differently from employees in another department, so long as the reason for this difference is not tainted by considerations of sex, race, disability, age, sexual orientation or religious belief.

In practice, there are a variety of reasons why an employer might want to make salary cuts. For example, some employees will have fewer tasks to perform, so it makes sense to reduce hours as well as pay. 

But for other employees, there will be as much work to do as before, but for less overall profit for the employer, and it does not make sense to cut the workload of those employees, even where it is necessary to reduce their pay.

Employees who work part-time should be treated in the same way as those who work full-time, unless the employer has a good reason for treating them differently. If an employer has reduced a full-time employee’s hours, it should usually offer to reduce the hours of a part-time employee in an equivalent role by the same proportion.

James Medhurst of Royds Withy King said if you do not want to agree to a variation of your employment terms, it is important that you set out your objection in writing

Do I have to sign a contract and what happens if I don’t?

LC: Often the employment contract requires any changes to contractual terms to be recorded in writing. 

Therefore, if you agree to a variation to your terms such as a reduction in pay or hours, you may be asked to sign a letter or other contractual document to indicate your consent to the changes. 

Practically, it is always better to have what is agreed set out clearly in writing and signed by the parties. 

However, if you don’t want to agree to the changes then your employer cannot force you to agree or to sign anything.

If you do not agree, in the present circumstances your employer may feel there is no option but to seek alternative routes, including redundancy or potentially ending your employment contract on its current terms and offering you the new terms as an alternative. 

Such options usually require consultation and may give rise to claims if not handled correctly. 

Employers may also try to unilaterally impose the terms in the hope that, considering the threat of unemployment, claims will not be pursued.

JM: If you do not want to agree to a variation of your employment terms, it is important that you set out your objection in writing. 

If you do not object in writing, it is possible that you will be held to have agreed to the proposed variation simply by continuing to turn up for work. 

A contract can also be varied orally and your agreement can be inferred from your behaviour – no signature is required. 

If you can produce written evidence to show that you did not agree to the variation, this will give you some protection if there is a dispute in the future about what has been agreed.

If you agree to a variation of your employment terms, your employer will usually send you confirmation in writing. 

What does it mean to be furloughed? 

If you’re being furloughed by your employer, it means you’re being sent home, but will still receive 80 per cent of your salary from the Government, up to a maximum of £2,500 a month. 

However, you first need to agree to be put on furlough by your employer, who can then apply for the money to the Government. You cannot apply for it yourself.

Your employer can choose to pay the remaining 20 per cent of your wages, although it is not obliged to do so.

If you earn more than £2,500 a month, your employer can choose to ‘top up’ your salary, but again it is not forced to do so.

You will still continue to pay income tax and national insurance contributions while on furlough.

Benefits such as health insurance, private medical, gym membership etc should continue as normal unless otherwise agreed. 

This Government job retention scheme is only for employed people, it does not apply if you are self-employed. There is an alternative scheme in place for those working for themselves. 

It is possible to refuse to be furloughed, however, doing so may put you at risk of redundancy and/or termination of your employment. 

It might ask you to sign something to confirm your agreement but, even if it does not, this will not prevent an agreement from being legally binding. Once it has become legally binding, you will not be able to change your mind.

If you have agreed to a pay cut only temporarily, it is important to ensure that the written document specifies the date on which your pay will return to normal. 

Can I be furloughed instead? 

JMAs an employee, you have no right to insist that your employer furloughs you. 

Whether you are furloughed or not will depend on whether there is any work that your employer wants you to do. 

There might be a small number of employers who have not yet heard about the Government’s furlough scheme and so it is worth drawing it to your employer’s attention, but your employer does not have to use the scheme if it does not want to.

Your employer generally cannot act in a discriminatory way in deciding who to furlough and, if others employees are being furloughed but you are being asked to take a pay cut instead, you are entitled to ask why. 

However, your employer is allowed to give additional protection to employees who are pregnant or have underlying health conditions, and is allowed to treat some sections of the workforce differently from others for non-discriminatory reasons. 

Am I only eligible for furlough leave if redundancy or being laid off was the alternative?

LC: The guidance is unclear, but it appears not. The Government has indicated that the intention behind the furlough scheme was to assist employers whose operations have been severely affected by COVID-19 and offer an alternative to redundancy, lay-off or unemployment. 

However, there is nothing in the guidance which expressly states that employers will be required to evidence that redundancy was the only alternative. 

In practice, the scheme is most likely to be used for employees who might otherwise be made redundant, because it is a condition of being furloughed that: (i) the minimum period of furlough is three weeks and (ii) during the furlough, the worker must not do any work for the employer. 

Can I work for another employer whilst on furlough leave?

LC: Only if you are permitted to do so under the terms of your contract. 

Furlough leave only requires employees not to work for the business (or a linked or associated company) which is claiming the relief. Be aware that you may be asked to return from furlough leave on short notice, depending on your agreement with your employer.

You can also be furloughed by both employers, if necessary; in this case, the furlough payments from each employer are treated separately. 

Can my employer fire me or force me to take redundancy? 

James Medhurst is a senior associate in the employment team at Royds Withy King

JM: There has been no change to the law of unfair dismissal or redundancy. 

If your contract gives you the full set of employment rights, and you have worked for your employer for two years or more, you have the right to challenge a decision to dismiss you or to make you redundant. 

If so, your employer should consult with you and should follow a fair process before making a final decision, and should offer a right of appeal. 

If it is making 20 or more redundancies, it might also need to consult with a trade union or with elected representatives.

Redundancies based on genuine financial or business reasons will often be fair, but it will be unfair for employers to use coronavirus as an excuse to dismiss employees who they do not want to keep for other reasons. 

Employees with two years’ service are entitled to receive a redundancy payment regardless of the financial circumstances of their employers. 

Even if your employer folds, you can claim a redundancy payment from the government instead.

Some contracts, such as those of many gig economy workers, do not provide a right to bring a claim for unfair dismissal or to receive redundancy pay.

Please note the above does not constitute legal advice and the answers are based on current guidance which is being constantly reviewed by the UK Government. For further and the latest information visit the official website.

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