Can employers remove location-based pay under agile working?

Colin Davidson explains the legalities of changing or reducing the pay of employees who no longer or rarely go into the office

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The pandemic has changed the way many of us work, with home working or agile working becoming the norm for countless employees. While this revolution has had many benefits, it has also led to employers questioning wages they pay to employees no longer based in London. Similarly, employers are asking whether they need to continue paying London weighting for those who rarely, or never, come into the office, and what they should do with new recruits.

While on the face of it, reducing pay or withdrawing London weighting may be an attractive money-saving option, the reality is fraught with danger and should be considered cautiously. This decision raises multiple issues, such as how to harmonise your workforce where existing employees may work from home outside London, yet are in receipt of London weighting, whereas new recruits are not being offered this benefit. It also raises the possibility of equal pay and other discrimination claims.

What is pay for?

The core question employers should ask themselves is what is an employee’s salary for? Is it to reflect the cost of living in London or is it to reflect the requirements of the jobs and the clients they service?

When considering how to pay remote staff, it is likely that companies will assign a ‘base office’ with which to align pay. While it may appear attractive to set this to the regional office that an individual is physically closest to, employers may have to think twice. If the employee is closer to a regional office but is undertaking work for London-based or international clients, then it is likely they will expect their pay to be aligned with others who undertake that same work. 

While employees who work from home outside of London may not face the same living and commuting costs, the demands of the job often remain the same and the work is being produced to the same standard. As such, any employer needs to consider the justification for reducing an individual’s salary simply because they are not physically present in the same area if they are producing work to the same standard as their colleagues in London.

Changing terms and conditions

Those employers who seek to reduce pay, or remove London weighting from existing employees, cannot simply do so unilaterally. To change a fundamental aspect of an employee’s contract, such as salary, an employer is required to go through a consultation process. In reality, any employer is likely to face stiff resistance when seeking to lower anyone’s salary in these circumstances. While there may be flexibility clauses in employees’ contracts, these are unlikely to allow for a change as detrimental as a reduction in salary. Any attempt to do so could amount to a breach of the express terms and also the implied term of trust and confidence. 

Potential claims

Unilaterally imposing a change as set out above could result in claims for unfair or constructive unfair dismissal. Additionally, any reduction in an employee’s pay could also lead to claims of discrimination or equal pay. For example, a woman working remotely who is earning less than her male colleague working from the office while servicing the same clients, could have a prima facie claim for equal pay. While the employer may have a defence based on market forces in the local area, this is again fraught with danger and consideration needs to be given to the skills required for that role, rather than simply the area. Claims could also arise on the basis that disabled people may be less able to travel to the city regularly and as such any requirement for this which is tied to a higher salary, or London weighting, would seemingly place disabled people at a particular disadvantage. 

Overall, while removing London weighting may save costs in the short term, in a market where employees are seeking increasingly flexible working environments, it could also result in a loss of talent to your business. Adding the potential legal risks, any employer may wish to think twice before making any pay reductions as a result solely of remote working.

Colin Davidson is head of employment at Edwards Duthie Shamash