Pay cuts for home workers?20 August 2021

Could UK employers cut the pay of those who choose to continue to work from home?

Pay cuts can usually only be implemented with an employee’s consent. An employee’s salary is a contractual term, and for most employees, the key contractual term. Any unilateral pay cut by an employer is likely to result in actual or threatened breach of contract terms. Other claims could also be asserted, most notably indirect discrimination, equal pay and, potentially, constructive unfair dismissal claims.

New recruits

For new employees, a lower salary could be offered at the recruitment stage and applied from day one of their employment. Market forces might, however, impact how practical this approach is, especially when skills are in short supply.

There is also a risk that lowering pay for new recruits creates a two-tier workforce – those working from home and those in the office. It could potentially suggest that office-based employees are more valued than those working from home. Additionally, if an office-based role and a home working role are clearly comparable, employees who are paid less could raise equal pay complaints going forward.

Existing employees who choose to work from home

For existing employees where consent to a pay change is not forthcoming, employers have a number of options which come with their own difficulties:

1. Dismiss and reengage the employee on new terms: This is not an easy route forward. The employer’s argument would be that there is a diminished need for the role at the existing salary level based on location, but there is an alternative role available at a lower salary working from home. Alternatively, employers could try to rely on a substantive business need to “fire and rehire”, but that business reason must be pressing and sufficient to justify dismissals under the fair category to dismiss – some other substantial reason (“SOSR”). Tribunals will want to see a demonstrably clear reason for an employer making such a decision, a consideration of all viable alternative routes and a full and thorough process. Whether redundancy or SOSR terminations are considered, if employees refuse a voluntary pay cut, full consultation would be required prior to the change taking effect. Employees are entitled to be given notice and collective redundancy consultation obligations can be triggered if the change involves 20 or more employees potentially being “dismissed”. Employees could, if they were dismissed, bring an unfair dismissal claim in the event they consider the need for their original role and salary had not diminished, or, if they considered there was an insufficient business need for termination and the offer to rehire on detrimental terms. Both options can significantly impact employee relations negatively and are usually a last resort. ACAS was recently asked by the Department for Business, Enterprise, and Industrial Strategy (“BEIS”) to conduct a fact-finding exercise following reports of an increase in employers dismissing staff and re-engaging them on less favourable contracts during the pandemic. ACAS recently published a briefing on the issue (read here), outlining their findings and intended for use by BEIS policy officials to inform their future policy thinking on the issue of fire-and-rehire;
2. Reduce pay rises (or stop them entirely) moving forward: This results in a future “pay cut”, but no immediate cost saving for an employer. Again, there are inevitable employee relations and retention issues and the risk of creating a two-tier workforce and the potential for future employment law claims; and
3. Reduce or stop paying discretionary bonuses: Again, this risks creating a two-tier workforce and raises the potential for claims. It is also likely to have a negative impact on morale and may make some employees look for alternative employment. In the event that a “discretionary” bonus has been paid habitually and its terms are certain, there may also be scope for employees to argue that the bonus is in fact a contractual entitlement and not paying it is a breach of contract.