Can business owners reduce staff salaries to keep their business afloat?

Case – Benge & Anor v Bluescope Steel (AIS) Pty Ltd (No.2) [2020] FCCA515 (13 March 2020)

Businesses are currently operating in times of extreme uncertainty. The fast onset of COVID-19 caught businesses worldwide off guard and have placed many on the brink of closure.  

During these times, many businesses are looking to drastically reduce their overhead costs. One of the biggest expenses for all business is staff wages. With a reduction in money coming into to business, many business owners are now asking whether they can reduce staff salaries in order to keep their business afloat? This question is being considered in a pre COVID-19 context by the Federal Circuit Court.

In this case, the employer (Bluescope Steel) reduced the salaries of the two applicants by 18% and 16%. This reduction occurred as they were experiencing a difficult financial period caused by business downturn. The perilous financial position of the company was well-known both within the workforce and in the wider community. Representatives from the company set a target of savings of $60million from wage costs.

The employer argued that it could unilaterally reduce employees’ salaries at any time. The Court rejected this argument but acknowledged that it is possible to reduce employee salaries as part of a formal salary review as prescribed in their employment contracts. The Court found that the employer had contravened s 323 of the Fair Work Act 2009 (Cth) by failing to pay amounts payable to the applicants under their respective written contracts of employment. It was ultimately held that to reduce their salaries by any means other than as prescribed in their contract would be a fundamental breach of their employment contracts.

Has this changed since COVID-19?

On 8 April the Federal Parliament passed the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (first measure)and Coronavirus Economic Response Package Omnibus (Measures No.2) Act 2020 (second measure).

The second measure amended the Fair Work Act 2009(Cth) to enable eligible business owners to support greater flexibility to manage workers’ hours, location and duties. The Fair Work Commission also introduced phase 1 measures to 103 Modern Awards:

  • A new Schedule X was added– Additional measures during the COVID-19 pandemic – under section 157 of the Fair Work Act 2009.
    • These Awards were selected as the sectors that have been most adversely impacted by COVID-19.
    • Schedule X provides an entitlement to 2 weeks’ unpaid ‘pandemic leave’ and the flexibility to take twice as much accrued annual leave at half pay, by agreement with the employer.
    • Variation applications may still be made to vary modern awards to provide additional measures.

Can business owners now direct workers to change their work hours, or reduce their base rate of pay under the new COVID-19 legislation?

Business owners can make changes to the day or days on which workers ordinarily work, while their workers receive JobKeeper payments.Changes must be achieved by agreement rather than unilateral direction but a worker is not permitted to unreasonably refuse a reasonable request. Under the “hourly rate of pay guarantee”, business owners cannot reduce worker’s base rate of pay.

What about JobKeeper?

Under current information surrounding JobKeeper payment, if your workplace has been affected by COVID-19, there are other options for businesses to reduce salary costs, including:

  • If your turnover is less than $1billion and you have experienced a 30% decrease in revenue (or greater than $1billion and experienced a 50% decrease), your business may be eligible to access the Jobkeeper payment from the Australia Government.
  • Reassess whether the company can vary or withdraw any bonuses or incentives schemes
  • Discuss with employees the effects of COVID-19 and come to a amicable agreement that will reduce employees’ hours of work.
  • Dependent on what award are applicable to your employees, the Fair Work is allowing employers greatly affected by COVID-19 to stand down employees without pay. During this period, employees would still acrue leave and have access to their paid legal entitlements.

The most important aspect is to ensure that employees are informed of what is occurring and how it is likely to affect the business and their employment. Keeping open lines of communication will ensure employers and employees remain united.

If we reduce salaries will we be penalised?

If you are a business owner and are unsure as to how to best protect your business or what your responsibilities are in any given situation, please contact our office for further advice. 

If you are a worker and are unsure as to how to best protect your job or your income, please contact our office for further advice. We are offering a special discount for employees during this time.

Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkdin
Share on email
Email it to your friend