Is it fair for an employer to reduce salaries of employees who will permanently work from home?

Is it fair for an employer to reduce salaries of employees who will permanently work from home?

Speed read: With many businesses starting to encourage a return to the office, various companies have intimated the intention to implement salary reductions for employees who will continue to work remotely on a permanent basis. This article outlines whether these contractual variations can be lawfully made and summarises recent reports that have commented on this practice.

Is it fair for an employer to reduce salaries of employees who will permanently work from home?

The requirement to work from home for many non-essential workers has been one of the very few welcomed consequences of the pandemic, enabling time previously spent commuting to be used more productively. Unsurprisingly, many companies have embraced this “new-normal” and even seen their performance improve, with businesses such as Reddit and Zillow announcing that employees can work from home permanently.

But, as more and more of the UK workforce are become fully vaccinated and international travel seems more reachable, many companies are planning their approach to post-pandemic working arrangements. Google recently made headlines following an announcement that they had developed a pay calculator that lets employees see the effects of working remotely or moving offices, suggesting possible pay-cuts for those continuing to work from home and no longer having to commute. One unnamed Cabinet minister has also appeared in the news after suggesting that officials should have their pay docked if they refuse to return to the office after working from home for so long during the pandemic.

In line with this, a recent survey conducted by CIPHR has revealed that of the 150 business leaders and organisations asked, 68% currently paying location allowances are considering cutting pay for staff who opt to work from home, despite 53% reporting savings made through home working. 86% had already suspended, temporarily reduced, or removed payments such as the London Living Wage and other location premiums.

This approach has been criticised by Factorial HR, who published a report emphasising that the average UK salary would be £711 weekly (£36,972 annually) rather than the current figure of £586 weekly (£30,472 annually), had it increased at the same rate as rail tickets. The disparity between the cost of commuting and current wages has led the firm to label the minister’s suggestion that workers should be docked wages for not paying their commuting costs as illogical and unfair.

Are these changes lawful?

An employee’s salary is a fundamental term in any employment relationship. The general position is that an employer cannot unilaterally change an employee’s terms and conditions without first obtaining their agreement to such a change. Where this is not obtained, the circumstances will likely give rise to allegations of a breach of contract and, if the employee resigns in response to the breach and has over two years’ continuous service, constructive unfair dismissal.

There are some exceptions to this rule where the contract of employment authorises the particular change to be made. This can occur in three ways:

  1. Where it is possible to interpret a term sufficiently broadly to accommodate the change;
  2. Where there is an express right for the employer to make changes in the area of the employment relationship affected by the proposed change (a specific flexibility clause); or
  3. Where the contract of employment gives the employer a general power to vary the terms of the employment contract (a general flexibility clause).

However, given its importance, it is extremely doubtful that any of these options would be sufficient to permit an employer to unilaterally change an employee’s salary. Any ambiguity in the drafting of the contract or a flexibility clause will be resolved by a Tribunal against the party seeking to rely on it (i.e. the employer seeking to rely on an existing clause to implement a change to the employment relationship). As such, these types of clauses should only be relied upon where an employer seeks to make a more trivial change to the terms of an employment contract. For example, in some circumstances, an employer can rely on a mobility clause to require an employee to work at different locations.

In the light of the above, changing an employee’s salary without their express consent is very risky. Of course, obtaining consent will not always be easy. Where an employee refuses to consent, employers may find it useful to:

  • consider meeting with employees to explain why the change is needed;
  • explain alternatives if no agreement can be reached;
  • listen to the employees’ concerns and consider whether the change can be agreed if it’s implemented gradually under a transitional arrangement; and/or
  • offer an incentive to help the employee accept the change.

Where an agreement is still not achievable, some employers take the approach of terminating the employee’s contract of employment and offering them re-engagement on new terms. However, this brings with it risks of unfair dismissal if the employee has over two years’ service and there is (i) not a potentially fair reason for the dismissal; or (ii) the process followed is not fair.

What can employers take from this?

The decision to reduce salaries for remote workers should not be taken lightly. The recent reports referenced in this article outline the criticism of this approach and there is a real risk that affected employees will feel disappointed and underappreciated, particularly where they have worked productively from home throughout the pandemic.

If this is something that an employer wants to consider, it will be sensible to carefully outline the rationale for the change and why it is deemed necessary to affected employees and ensure that their concerns are listened to and addressed. Otherwise, employees’ morale and motivation could be significantly impacted.