across the bar

Q & A - forced salary reductions

by Steve - Posted 12 March 2009

Question:

We’re considering some cost cutting measures and the legality of mandatory salary cuts has been brought up. Is it legal to mandate a salary cut? Can you exempt certain people? Can you vary the amount of cut (say 10% for staff and 20% for management)? What notice do you have to give? Can you do it in the middle of the month for the salary due at the end of that same month?

Answer:

The general rule is that an employer cannot unilaterally vary the terms and conditions of employment. However in adverse economic conditions or for other legitimate operational requirements, reduction of salaries can be carried out as an alternative to retrenchment. The employer must discuss this first with all affected employees and must ensure that all alternatives or issues brought to the table are properly considered.

The employer must also make sure that the reductions are implemented in a fair manner and with due regard to the operational requirements that have led to the need for the reduction. There are no hard rules as to how the reduction should be implemented.

If the employees are members of a registered trade union, the employer will need to consult with the union rather than the employees themselves.