The impact of Coronavirus on wages

Businesses are having to consider how to reduce their wage costs as the coronavirus pandemic starts to have an impact on business and the wider economy. 

This article sets out what Employers can do when faced with a downturn in business.  Employers may be able to take advantage of contractual lay-off and short-time working provisions, but legal advice should be sought before seeking to make changes to employee contracts of employment.

Can we temporarily suspend or lay off employees on zero or reduced pay?

Without a clear contractual right to suspend or layoff or reduce pay in these circumstances, there is no clear process for the employer. Imposing suspension without agreement may give rise to claims against the employer, so the consent of individual employees to suspend would be required. 

Without a contractual right to do so, asking employees to stay at home for a temporary period on zero or reduced pay would be a proposed contractual change, and a contract change process would be required for this to be effective.

Agreements from employees should be sought to deal with the current extraordinary circumstances in order to minimise the risk of legal claims.

Employers in this situation should aim to be transparent with employees about the reason for the temporary suspension as well as what potential alternatives might look like, including perhaps having to consider redundancies. 

Seek volunteers 

One of the most effective ways of achieving cost cuts may be to ask staff to volunteer to be laid off for a period of no pay (unpaid leave) or agree to work reduced hours for reduced pay. Where it is apparent that the only alternative is deeper cuts at a later stage, many employees may be prepared to assist. 

What if we have to consider redundancies and pay cuts?

Many employers would offer voluntary redundancies first before going down the compulsory route. 

General pay cuts will need employee consent which may be difficult to achieve, although if there is leadership from the top and particularly in smaller organisations this may be forthcoming, especially if employees are offered something in return. 

Where compulsion is necessary, if 20 or more redundancies or forced changes to terms and conditions are proposed at one establishment within a period of 90 days or less, the employer is obliged to consult collectively beforehand for a minimum 30-day period with appropriate representatives of affected employees – trade unions, an existing employee body with an appropriate mandate, or a freshly elected employee body.

The nature of the crisis makes the process of organising elections and holding consultation meetings more challenging, but there is no reason in principle why technology such as skype etc. cannot be deployed to good effect. 

Employees who leave the organisation at the end of such a process will be entitled to notice, statutory redundancy pay and whatever enhanced redundancy pay the employer may provide.

If offering the latter, it might be possible to include an obligation to repay if the employee is given an opportunity to be re-employed in the same role within a certain time period afterwards.