Our managing director implemented a 10% pay reduction for all staff and managers with effect from 1 April. He announced this on 2 April. I am the HR manager and have explained to him that he needs employee consent as it is fundamental change to our employees' terms and conditions. He argues that he took legal advice and was told that he could unilaterally implement the reduction without consent as the change affects everyone and is thus indiscriminate. Can you please advise?

Posted in : First Tuesday Q&A NI on 4 May 2010
Arthur Cox
Arthur Cox
Issues covered:

It is almost certain that cutting pay in this unilateral fashion will indeed amount to a breach of contract, but I would need to see the contracts of employment to be sure. Very occasionally contracts of employment are drafted with a "flexibility clause" that gives the employer the ability to reduce salary. The wording of the contract would, however, have to be very precise – general wording that the "employer reserves the right to make changes to the contract etc" simply would not cut it.

Assuming that your contracts of employment do not give the managing director the ability to cut pay in this way, you are correct that you need each employee to agree to the pay cut on an individual basis.

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Back to Q&A's This article is correct at 22/10/2015

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Arthur Cox
Arthur Cox

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