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Implementation of a 15% pay cut due to impact of COVID-19 found to be an unlawful deduction

23 July 2021

A recent decision of the WRC (A Project Manager/ Translator v An Interpretation and Translation Group ADJ-00028367) looked at the reasonableness of an employer unilaterally implementing a 15% pay cut due to the impact of COVID-19 and on foot of a variation clause contained in the employee's contract of employment. 

The Complainant in this case submitted a claim against the employer, an interpretation and translation group company, under the Payment of Wages Act 1991, alleging the pay cut amounted to an unlawful deduction from her wages. 

COVID-19 revenue reduction 

In response to COVID-19 and it's impact on revenue, the Respondent decided to implement cost saving measures which included a reduction of the Complainant's wage. 

The Respondent introduced a 15% wage reduction to all of its 53 employees in April 2020. The wage reduction was initially put in place for a 60 day period, up until 31 May 2020. 

The Respondent asserted that its business expected to experience a 21% decrease in revenue in 2020 compared to the previous year. It availed of the Government Temporary Wage Subsidy Scheme (TWSS) at the time, although later did not meet the eligibility criteria and was required to repay the amount received in this respect. 

Claim under the Payment of Wages Act, 1991

The Complainant pursued a claim against her former employer under section 5 of the Payment of Wages Act 1991. 

Section 5 of the Act provides that an employer shall not make a deduction from the wages of an employee unless; 

(a) the deduction (or payment) is required or authorised to be made by virtue of any statute or any instrument made under statute,
(b) the deduction (or payment) is required or authorised to be made by virtue of a term of the employee's contract of employment included in the contract before, and in force at the time of, the deduction or payment, or
(c) in the case of a deduction, the employee has given his prior consent in writing to it. 


The Decision 

The Adjudication Officer found that the Complainant made a legitimate claim under the Act. The Adjudication Officer referred to the fact that despite the uncertainty caused by Covid-19, the Respondent's business had not experienced a serious downturn to the levels it expected in April 2020. 

The impact of the pandemic caused the Respondent's revenue to fall 12% from 2019. It was also noted that the Respondent did not meet the eligibility criteria to apply for the Temporary Wage Subsidy Scheme in 2020. 

In relation to the variation clause contained in the Complainant's contract of employment, the Adjudication Officer did not accept that the 15% reduction made was reasonable or proportionate given the fact that the pandemic had a minimal effect on the Complainant's role in the business, and given the size of the Respondent's business itself (as a Multi-National Corporation) 

The Adjudication Officer found that it was not reasonable for employers to rely on such variation clauses in order to implement pay cuts, in circumstances where there has been no consultation or consent give from the employee affected, and that this applied to pay cuts even of a temporary nature. 

The Complainant's claim was upheld and the Respondent was ordered to pay the Complainant €803 in respect of the outstanding pay. 

Key points for employers 

This case will be relevant for many employers who considered or sought to implement cost cutting measures, including reductions to employee's pay as a result of the impact of Covid-19 on their business. 

While an employer is entitled to take steps to reduce costs, it must be mindful of its legal obligations to employees both under statute and as a matter of contract law. Any reduction to an employee's pay, which is a fundamental term of the employment contract, should be done following consultation with the employee and with the employee's agreement. 

Employers should be aware that any attempt to unilaterally implement pay cuts is likely to result in litigation, as well as giving rise to employee relations issues more generally. 

Authors: Alison Martin, Senior Associate and Laura Leogue, Trainee Solicitor 

 

Further Reading

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