Your rights: Pay cuts without deal against law

Q: In mid 2001 I was given a performance review and my salary was increased by $5000. In December of 2002 the company initiated a 10 per cent salary cut and asked employees to sign a document agreeing to this cut. I did not sign the document, but my salary was reduced by 10 per cent regardless, leading to me earning less than when I was hired by the firm (despite a few minor wage increases).

My questions: is this a legal practice? If not, what are my possible actions to receive the money I feel is owed to me? Also, are there any interest-type penalties the employer must pay, and must potential raises be included in the reimbursement?

A: Your employer has deliberately reduced your pay, without your agreement. This is unlawful. Your salary was a term of your employment agreement. An employer cannot alter your terms of employment without your consent.

If your colleagues agreed to a salary reduction, then your employer is entitled to reduce their salaries if they were on individual employment agreements (as long as they are receiving at least the minimum wage). Sometimes employees agree to wage reductions to prevent redundancies.

For employees on collective employment agreements (CEAs), the employer can pay less than the amount staff are entitled to in the agreement only if the entitlements are varied using the procedure stated in the CEA.

What about past salary increases?

Your written employment agreement may state an old salary rate, the rate you were on when you began your employment. But it is considered that salary increases are a variation of your employment agreement and form part of the agreement.

So the amount of your salary that cannot be reduced without your consent includes any pay rises since you started. Your employer could only reduce or withdraw a pay increase if your employer stated, at the time the pay increase was offered, that it could be withdrawn at any time without your consent.

What can you do now?

You have a number of options. The most common would be an action for arrears of wages plus a penalty action and a compliance order.

This means you would ask the Employment Relations Authority to order the employer to pay the amount of salary the employer has failed to pay you since introducing the salary reduction, and a penalty (fine) for breaching your employment agreement, plus an order that the employer reinstate your correct salary and continue to pay it to you.

Any penalty is usually paid to the Crown, not the employee. Interest could be awarded on the amount of salary you have lost.

You need to consider whether you want to stay with this employer, since claiming your arrears of wages will sour the relationship. You may be able to resign and claim constructive dismissal, as well as your arrears claim. Take detailed advice before you do this. For more information about the options you could contact an employment law specialist or the Employment Relations Service.

If you bring an action, your employer might say that the reduction was necessary for its business to survive or to prevent redundancies.

This does not remove your right to be paid your full salary. But you should be aware that if your action results in reinstatement of full salaries for all staff, the employer might lose its business or need to make some staff redundant.

You asked about pay increases you might have received if your employer had not introduced salary reductions. You are unlikely to be able to enforce any entitlement to these or receive any compensation.

Although employees sometimes have a contractual right to pay reviews, they seldom have a contractual right to pay increases. If your terms of employment do include a right to pay increases, and one should have occurred since salary reductions were introduced, you might be able to recover the unpaid salary increase and enforce your right to be paid the increased amount in the future.

So you do have some remedies. But remember that your employer probably introduced salary reductions for a reason, and weigh up reinstatement of full salary against the risk of redundancy.