Is it legal to reduce employees’ salaries?

As BBC bosses prepare to cut some male presenters’ wages in a bid to stamp out pay gaps among their workforce, Shân Evans outlines the HR pitfalls that could follow

After pay gaps among the BBC’s workforce were revealed, six male employees agreed to a wage cut of up to 30 per cent, with Radio Four presenter John Humphrys saying that this is a reasonable move in light of the corporation’s reduced budgets. However, this is an unusual action for an employer to take, and it can be fraught with legal risks.

Legally, an employer cannot impose a pay cut upon its employees if they have an employment contract that sets out details of their salary entitlement. This decision is therefore one the employees in questions will have to consent to. They are not obliged to give their consent, and they could take legal action to prevent such a change.

However, the BBC is, in many ways, a unique case. It is part funded by – and accountable to – licence fee payers, its presenters are public figures and its workings are open to close public scrutiny. Clearly, if the male presenters in question balk at this change, there would be consequences for them in the court of public opinion.

The BBC won’t be the only employer caught up in controversy this year. The UK is one of the first countries in the world to push through gender pay reporting legislation. This requires businesses with 250 or more employees to publish statutory calculations illustrating any pay gap between male and female employees. It is ushering in a new era of transparency that many have welcomed, but has put the onus on employers to get their house in order.

While there are no financial penalties levied at employers that fail to produce this report, there are compelling reasons to do so, beyond the legalities involved. The issue of equality and fairness in the workplace has become a watershed one, and companies are being judged by their customers and clients based upon how they conduct themselves. 

In the first instance, it is sensible for an employee to talk to their employer to try to resolve the issue informally if they believe they are losing out on pay because of their gender. If this doesn’t yield results, a claim for lost earnings can be brought, subject to certain time limitations. 

Of course, the logical answer to closing the gender pay gap might be to increase the wages of female workers rather than to reduce the wages of their male counterparts but, for large organisations like the BBC, which pay high wages to its big names, this option clearly isn’t one they relish.

The corporation should be aware that if – as an employer – it moves to reduce an employee’s salary without their consent, the employee will be entitled to:  

  • resign and pursue a claim for constructive unfair dismissal; or
  • continue to work under protest but sue for compensation for the loss they have suffered because of their reduced salary.

If an employee doesn’t agree to a reduction in pay, an employer could terminate their employment contract by serving them with contractual notice, then offer a new contract on a lower salary. Employees whose contracts are terminated can bring claims for unfair dismissal, even if they have accepted the new contract.

Be aware too that if a certain number of employees are affected by proposals like these, an employer is legally obliged to consult with a trade union or employee representatives about the changes. If they don’t they may face hefty compensation claims.

The results of a claim for unfair dismissal will depend upon:

  • whether the employer can establish a substantial business reason for the pay reduction;
  • whether the disadvantages the employee would suffer as a result of the changes were properly considered and whether these outweighed the advantages to the employer of implementing the changes;
  • whether the employer had engaged in meaningful consultation about the salary cut;
  • whether a majority of the employees accepted the changes; and
  • whether the employer acted reasonably when responding to employee objections.

If an employer decides to pursue this course of action – ensuring the pay cut is justified, and that each step of the process is legally compliant – it will not only help to avoid costly employment tribunal claims, it will also ensure good employee relations.

Shân Evans is an employment solicitor at JCP Solicitors