If you are an employer who is under financial strain, you might be wondering whether you can ask your staff to voluntarily take a pay cut to ensure the longevity of your business. Likewise, if you are an employee, you might be wondering whether your employer is allowed to require you to work for less money.
The simple answer is that Australian employers cannot force their employees to take pay cuts, even if there is a justifiable reason for doing so. The reason for this is that an employee’s rate of pay (or salary) is generally set out in an employment agreement and cannot be altered without the consent of the employee. As such, if an employer would like their employees to take a pay cut then it is required to ask them to do so. The question then becomes, what happens if an employee refuses to take a pay cut?
Employers are, in some circumstances, permitted to terminate the employment of employees who refuse to accept pay cuts. However, the Fair Work Commission has indicated on a number of occasions that employers who stand down employees who refuse to accept pay cuts need to do so in a manner which is not harsh, unjust or unreasonable. Otherwise, the employer may be susceptible to an unfair dismissal claim by their employees.
In order to avoid unfair dismissal claims of this kind, employers should always engage in proper consultation with their employees about the genuine reason(s) for a proposed pay cut. This consultation should include presenting the proposal to the employees, allowing the employees to ask questions and give feedback and providing the employees with time to properly consider the proposal and respond. It is also necessary to treat all employees equally in this consultation process, regardless of their personal circumstances.
Employers may also be able to avoid unfair dismissal claims if they stand down their employees on the basis of a genuine redundancy. Genuine redundancies occur when employees are stood down because their job is no longer required to be performed due to changes in the way that a business operates. The obligation rests on employers to prove that a genuine redundancy has occurred in order to prevent an unfair dismissal claim on this basis.
If you are an employer who is considering asking your employees to take a pay cut or an employee who has been asked to take a pay cut, call us on (02) 9199 8597 or email us for a no obligation chat.
At JFM Law, our team of employment law experts can explain your rights and obligations and help you to prevent, defend or make an unfair dismissal claim if necessary. We will ensure that you leave fully aware of your rights and obligations, creating a little extra peace of mind in tough times.
The information contained in this post is current at the date of editing – 9 August 2024.
