How to impose an across the board pay cut

The Fair Work Commission has applauded as appropriate an employer imposing an across the board temporary pay cut of 10% having found itself in tough economic conditions and having resolved that that solution was better in all the circumstances than shedding jobs. The key to the Commission’s support was the careful consultation which was undertaken by the company with its workforce and the support from the workforce which the proposed measures attracted.
“In this case other employees took a pay cut of 10 per cent on a temporary basis in order to save the business, and save jobs. The reasons for this, and the manner in which it was done, were outlined in the witness statement of Mr.Paul Skuse, General Manager Operations. In summary, in 2015 the employer suffered an unforeseen and significant reduction in revenue and a significant cash flow problem. It had already cut expenditure in every other party of the business where money could be saved. The employer avoided cutting labour costs ‘for as long as we could, and the management team was very conscious that many of our staff needed their jobs and, if they lost their jobs, would struggle in a tight labour market’. The ‘obvious solution’ was to reduce labour headcount, but the employer was reluctant to do this. In order to retain existing staff levels it ‘decided to engage with our employees, to tell them about our financial difficulties, and to ask them to take a 10% pay cut, for a few months while we worked at overcoming the cash flow problem that confronted us’. The employer arranged to meet with employees around that country and put the alternative of a voluntary, temporary, pay cut as an alternative to cutting jobs. The ‘vast majority’ accepted this, except for the applicant. Without such an ‘overwhelming and uniform support from our staff, we would have had to cut jobs and reduce our headcount’. As a result of the staff sacrifice full pay was restored to all staff by 7 March 2016.
This is a legitimate course of action taken by the employees and employer, and no criticism should be made of it in my view. Indeed it might be said that it appears to be the sort of joint effort by employees and employer which should be encouraged by this tribunal. Unfortunately not all employers and employees are able to work together constructively in this way to save a business and a substantial number of jobs.”
Nevertheless a single employee who refused to accept the reduction in remuneration and who was dismissed has succeeded in an unfair dismissal case, essentially it would seem from the decision because he had been absent on leave when the consultation had occurred and had not had been reasonably consulted.
“However, in this case Mr.Piggott was not consulted about this. Other employees were given a presentation from management while he was absent on leave. Mr.Piggott however returned to work from annual leave on 4 January 2016 and was given a letter advising that he had until the close of business the next day to agree to a 10 per cent wage reduction or be terminated.
This is not an appropriate manner to approach such a serious issue as a 10 per cent reduction in pay for an employee. The employer should have advised Mr.Piggott of the problems that the company had, and provided other relevant details, as well as the opportunity to ask questions and consider the issue, and to respond. He should in other words have been treated as other employees were. I also note that there is strong support in the Act, awards and authorities for consultation before such drastic steps are taken (Eg. s.387(b)(c) and (d) of the Fair Work Act 2009 refer to various forms of procedural fairness; s.389 of the Act provides that a redundancy is not ‘genuine’ if the employer has not complied with consultation obligations; the Termination, Change and Redundancy Test Cases (1984) 8 IR 34, (1984) 9 IR 115 at 126-128, award clauses and other provisions in the Act.). For example sections 387(b), (c) and (d) of the Fair Work Act 2009 refer to various forms of procedural fairness, and these are factors which must be given weight in considering the fairness or otherwise of a termination of employment. In this case the factors referred to in ss.387(b) and (c) weigh against the employer.
Harsh, unjust or unreasonable
Overall the factors in ss.387(a),(b) and (c) weigh against the employer, and I note that s.387(a) is specifically limited in its nature. I am required to have regard to and give weight to each of the factors in s.387. This is a case in which there is no valid reason and procedural fairness was lacking, although there are other matters recognised in s.387(h) which weigh in favour of the employer. I have taken all matters into consideration. In my view the termination of employment of Mr.Piggot was harsh, unjust or unreasonable. I now turn to remedy.”
One suspects that the result of the unfair dismissal case would have been different had the employee refused the pay cut after the company had undertaken reasonable consultation with him.
Piggott v Wellpark Holdings Pty Ltd (2016) FWC 3188 delivered 14 June 2016 per Hamilton DP