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Employers may have to consult as though making redundancies when making pay cuts

Employers imposing pay cuts rather than making staff redundant may have effectively made employees redundant if they subsequently resign – triggering the requirement to collectively consult with employees – according to a recent legal ruling.

An employee in Spain was made redundant. He argued that one of his colleagues who had resigned after the employer had cut his pay by 25 per cent, had also been made redundant. If the employee was right it meant that more than 10 per cent of the workforce had been made redundant, triggering the requirement for the employer to collectively consult with its employees before dismissing them.

The European Court of Justice (ECJ) found that under EU law, ‘the fact that an employer – unilaterally and to the detriment of the employee – makes significant changes to essential elements of his employment contract for reasons not related to the individual employee … falls within the definition of ‘redundancy’ for the purpose of … [the relevant EU Directive]’. It therefore ruled that a resignation following a pay cut could amount to a redundancy in certain circumstances.

The UK law on the requirement to consult with employees before making them redundant also defines ‘redundancy’ widely, so the UK courts might well have reached the same decision as the ECJ on the facts of this case.

In addition, under recent UK legal rulings an employee who accepts a unilateral reduction in pay, and remains in their job, may still be able to claim constructive dismissal if they can show they only did so in order to mitigate their loss. These decisions make the issue even more complicated for employers planning on imposing pay cuts.

Operative date

  • Now

Recommendation

  • Employers imposing pay cuts rather than making people redundant should be aware that employees may resign, and claim that they have been made redundant in any event, and there should therefore have been a collective consultation

Case ref: Pujante Rivera v Gestora Clubs, Case C-422/14

Jonathan Waters is the founder of Helix Law. Before qualifying as a Solicitor he worked in industry and in investment banking for over a decade. He was also the Partner in charge of Commercial Litigation, Employment Law and Property Litigation at Stephen Rimmer LLP. Jonathan has wide experience of helping and advising businesses to avoid or to deal with commercial disputes and in particular construction disputes.

This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of  this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice. 

Contact Helix Law on 01273 761 990 or email: [email protected]