What mechanisms are in place to reduce remuneration for a full time employee?

Generally nonewithout the employee’s consent. It is also important to consider the employee’s contractual entitlements and rights under awards and enterprise agreements.

Contractual entitlements

Generally a reduction of an employee’s remuneration may be seen as a breach of contract. It is possible for both the employer and employee to genuinely agree to a reduction, although it would be unusual for an employee to genuinely agree to a reduction in their remuneration. This is a complicated area of law and would require advice from a legal practitioner versed in this area.

One key risk for an employer would be from an employee who may argue that they did not genuinely agree to a reduction and therefore that reduced pay represents a breach of their employment contract. A reduction in pay could also be seen as a constructive dismissal and lead to the risk of unfair dismissal claims.

Award and enterprise agreements

Even if an employee does agree to a reduction, an employer would still need to abide by any minimum entitlements under a relevant modern award or enterprise agreement.

Demotion

Another area in which reduction of remuneration is relevant is where an employee has been demoted. The demotion of employees is also a challenging topic. A key risk with the demotion of an employee is that the employee may be regarded as having been dismissed if they are demoted to a role that has a “significant” reduction in their remuneration or duties.

In a former Australian Industrial Relations Commission decision on similar provisions in the Workplace Relations Act 1996 (Cth), a reduction of pay from $20.95 to $18 per hour was considered to be significant (Petkoski v Wiredex Pty Ltd (AIRC, Lewin C, PR972843, 10 July 2006)). If an employee is regarded as ‘dismissed’ then the employee may continue to work for the employer after the demotion and still have the ability to bring an unfair dismissal (or other) application against the employer.

Redundancy

Employers will often consider a reduction of remuneration where there are financial problems and an employer submits that they are unable to support anybody in that role at the relevant level of pay. If so, then an employer may be required to begin a redundancy process. A redundancy process may include the need to consult under a modern award or enterprise agreement.

A part of the consultation process may include agreement that a measure to mitigate or avert the impact of a potential redundancy could be, for example, that an employee reduces their hours or pay over a specified period of time in an attempt to overcome the workflow problems.

The redundancy process also includes the requirement to consider reasonable redeployment which may include different roles that may be available. Redeployment can include offering a lower paid role. However, if such measures cannot overcome the workflow problems or the employee refuses to reduce their pay or hours or refuses any alternative role, then a redundancy may occur and an employee may be entitled to redundancy pay.

As a reduction of employee remuneration carries high risk, we recommend that members contact the Ai Group Workplace Advice Service on 1300 78 38 44 for tailored advice.

Clinton Fraser

Clinton is the Publications Manger at Ai Group. He is responsible for a number of key services including Annotated Modern Awards, Workplace Relations Handbooks and the management of Ai Group’s HR and Health & Safety Resource Centres. Clinton has a Masters in Employment Relations and previously held advisory roles with the Workplace Authority and Fair Work Ombudsman.