Employers reducing pay during pandemic should remember fundamental principle of employment relationship
The COVID-19 pandemic has thrown into disarray many of the norms that are part of doing business. Many companies have been forced to not only change the way they do business, but also to make some hard decisions on how to get through the crisis. For many, this means evaluating whether they need to reduce staffing levels by laying off employees.
As an alternative – or in addition – to layoffs, some employers are reducing the hours employees work, along with making a corresponding pay cut. This can be a good way to reduce costs, but that approach has its pitfalls of which employers should be wary.
Under normal circumstances, a reduction in hours and pay could be a change in the terms of employment that could constitute constructive dismissal – a reduction of more than 10 per cent in compensation is generally considered the threshold. However, for a change to be considered constructive dismissal, it must also be without the employee’s consent. To make the change, the employer must either get that consent or provide reasonable notice of the change that would be equivalent to notice of dismissal, as the employer would be effectively terminating the existing employment contract and introducing a new one.
But the current circumstances aren’t normal and it’s unclear whether regular employment standards in certain situations will – or should – apply. In addition, it’s not really the best time for employers or employees to have to endure legal actions and the associated costs and time they require, especially since they’re likely to be delayed as courts focus on essential or urgent matters.
As in regular times, if an employer wants to make changes to the terms of employment such as a reduction in hours and pay, it’s best to seek employees’ agreement to the change by providing a clear explanation of why it is happening and taking the approach that it is working with employees to get through the crisis. Employees will likely be more willing to accept the change and adopt a co-operative attitude.
Once an employer has employee approval and implements a reduction in hours and compensation, however, it has to be careful of what comes next. For the employer, of course, it would ideally like to get the same productivity out of employees, notwithstanding any drop in business and corresponding work available. But if employees are officially working fewer hours, they may not be able to get the same amount of work done and some prioritizing may have to be done.
Work-from-home flexibility
If employees feel pressured to do the same amount of work (or more if layoffs have left more work to be done by fewer people), they are more likely to put in longer hours. This may particularly be the case in the current reality where so many people are working from home – with more flexibility in the working environment and when they can work, employees tend to check in more during off-hours and spread out their work more, which can result in them actually putting in more hours over the course of a day or off-day. This tendency would likely increase if employees have a lot of work to do.
On the surface, one might say employees who choose to work more hours than for what they’re being paid are making their own decision, especially if they’re doing it from home when employers can’t closely monitor the exact hours they’re putting in. However, if they feel pressured or the employer is giving them work that can’t be completed during the reduced hours, it can demonstrate that the employer is expecting employees to perform work without getting paid.
A fundamental principle of employment law is that workers perform work in exchange for compensation. If some of that work is performed without compensation, it’s a breach of that principle. Over the past few years, there have been multiple overtime class-action suits against big banks and other corporations where employees were given work that couldn’t be completed within their regular hours or approved overtime, which amounted to an expectation by the employers that workers perform some work without getting paid – which in some of the cases resulted in large awards for unpaid overtime.
It’s also good to keep in mind that employee mental health is being tested during the crisis – the economy is suffering, the news is frightening, and people are separated from many of their loved ones. Working without getting paid can add to the stress and harm the morale, state of mind – and, as a result, the productivity – of employees.
In the current crisis, employers and employees will have to work together to keep business going until things improve. But employers must be careful that they don’t take advantage of their employees too much – even in times of crisis, employment standards still should be followed as much as possible.
