My employer is forcing me to take a pay cut
Has your employer recently asked you to take a pay cut in light of COVID-19? In March we wrote about how to legally take a pay cut if you’re at risk of losing your job. However, we are seeing many companies enforcing unlawful pay cuts. Below we outline what an unlawful pay cut looks like so you know when to be cooperative to prioritise job retention but also when to fight for your rights if your employer is not doing the right thing.
Can a forced pay cut amount to a breach of contract?
If you do not agree to a deduction in pay imposed by your employer, this would constitute a breach of contract this is called a repudiation of the contract.
A repudiation will exist where an employer reduces your wages without your consent. The normal rule is that repudiation by an employer gives you the right to continue the contract, accepting the deduction or elect to accept the repudiation and bring the contract to an end, at the initiative of the employer.
If you took this option (terminating the contract), the result may be that you are eligible for damages for breach. You might also be eligible to commence an unfair dismissal or general protections claim or may be entitled to notice and redundancy pay.
Can a forced pay cut amount to a breach of the Fair Work Act?
Yes, an employer must pay you the amounts payable in relation to the performance of work in full (s.323 FW Act).
An employer may only make a deduction from an amount payable to you if you give your consent in writing and is principally for your benefit (or is permitted under an industrial instrument or law) (s.324 FW Act).
A term of your contract of employment has no effect to the extent that the term permits your employer to make a deduction from an amount payable for the performance of work if it is for the benefit of the employer and unreasonable in all of the circumstances (s.325 FW Act).
If the deduction breaches all three of these sections, then each breach is subject to a maximum civil penalty of up to $63,000 or $12,600 for the individuals involved.
How can I reject a deduction? Do I have any options considering that I am probably unlikely to resign in the current job market?
You should inform your employer that you do not agree to the proposed deduction.
You should also state that if your employer proceeds they will be in breach of the Fair Work Act 2009 (Cth) and that you reserve your rights to commence legal action for the breach.
As we wrote in our blog on this topic you can write a letter to your employer including following rights and entitlements:
“In the current circumstances, I am prepared to consider a temporary reduction in my pay or salary. This is what I’m prepared to accept. From this date, all of my entitlements up until now remain the same. I reserved them all at the pre cut rate. And if my employment ends during this temporary reduction period, then we agree that any entitlement to notice or redundancy pay is to be calculated in accordance with my pre cutting entitlements.”
Unsure how to respond to your employer? Contact us today on 1800 RES 123 or book a 20 minute consultation that could be the difference between protecting your rights or being unable to make a claim in the future.
When would a pay cut be legal?
In order to enforce a legal pay cut, your employer needs your consent. Without your consent and where it is not to your benefit, it will be unlawful.
What you need to know about reducing pay during COVID?
The enforcement of pay cuts without your consent is evidence of an ongoing imbalance of power in the employment relationship. Especially when you are more concerned about losing your job than you are about relinquishing your rights during times like these.
While job retention is key, hourly rates should be guaranteed, there are so many other options other than forced pay cuts and deductions including taking accrued leave and temporary reduction in hours.
You should know that if your employer is found to have breached the FW Act or your contract of employment those breaches are actionable for 6 years.
You should be prepared to consult and cooperate to retain your job but that doesn’t mean you should be accepting abuse of your rights. You should also be aware of the effect of agreeing to reductions or deductions in pay to your other employment entitlements e.g. accrued leave would be devalued, notice and redundancy pay are devalued and some changes may not be temporary.
Our Principal Carly Stebbing spoke to the Australian Financial Review on the unlawfulness of global engineering giant SNC Lavalin unilaterally enforcing a pay cut for all Australian resources employees by 10 per cent for three months due to a COVID induced downturn.
Next steps
Unsure how your situation may have impacted your entitlements? Contact us today on 1800 RES 123 or book a 20 minute consultation that could make sure you access what you deserve.
Want to learn more? Contact us today.
