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Pay cut consultations could trigger redundancy payments

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Companies which follow computer maker Hewlett-Packard's lead and attempt to cut staff wages risk triggering redundancy law payouts if they do not consult staff properly, an employment lawyer has warned.

Hewlett-Packard is seeking to cut the pay of its 300,000 staff by between 2.5% and 15%, depending on the level of job they have, as an alternative to making staff redundant.

Employment law expert Simon Horsfield is an employment lawyer at Pinsent Masons, the law firm behind OUT-LAW.COM. He said that plans such as HP's will become increasingly common as the economic downturn affects more and more businesses.

"I think this shows that companies are trying to think of creative solutions to redundancy programmes," he said. "It sends out a positive message to employees that you are proactively trying to protect jobs where you can, and to competitors that you don't have to effect redundancies."

In the UK, though, companies cannot simply decide to cut wages. They can only reduce pay with the consent of employees, Horsfield said.

"You can't unilaterally go ahead and change salaries to the detriment of employees, you need their consent," he said. "The argument that companies are making is that this is an alternative to redundancies. You need to present this as a part of package to deal with financial circumstances."

The way that a company consults is crucial, and can affect its legal status, said Horsfield.

"If you are considering these measures as an obvious precursor to forcing through changes by serving notice to terminate existing contracts and re-engage people at five or 10 per cent less, then you will find yourself in a redundancy situation for the purposes of the collective consultation legislation because of the way redundancy is defined in that legislation," he said. "Employers can expose themselves to protective awards of up to 90 days' pay per employee."

Horsfield also said that employers considering such a scheme should give it a definite end date. "We are recommending that employers put a limited time frame on it and give a date for reinstatement of full pay," he said. "If they find that the financial position hasn't improved by then, they must seek an extension from employees."

Horsfield said, though, that asking employees to accept a pay cut is a good way for companies to cut costs without alienating employees and cutting the firm's capacity to pick up business when the economic environment improves.

"It could help to make a company an employer of choice in the future by sending out the signal to current and prospective employees that it is not a firm that hires and fires its way through economic peaks and troughs," he said. "It also saves a company the cost of expensive recruiting when there is an upturn."

Union Unite has opposed the move to cut wages at HP, however. The UK's largest union said that its members would be "astonished" at being asked to take a pay cut.

"The company has today told us that in the UK any pay reduction will only be with employee agreement and that no coercion will be applied," said Peter Skyte, Unite's national officer. "We will be seeking written assurances about this when we meet the company next week.”

Copyright © 2009, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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