Employers unilaterally cutting pay during coronavirus lockdown are acting illegally

In one instance I read a memo from an employer to its employees notifying that their pay would be reduced by 30 per cent effective immediately and that everyone needed to suck up the pain. There have also been stories about large employers, such as Burger King, sending employees home without any indication as to whether they would be paid for the period of the shutdown.

Other employers have taken the view that because they are not getting paid, nor will their employees, or that they will pay only the amount of the government subsidy.

I have also seen employers directing their employees to take annual leave immediately, and even to take leave in advance or leave without pay – without their agreement.

This raises the question whether the extraordinary times mean that normal employment laws cease to apply.  The short answer is no, employment law is not currently suspended.  However there are some unique issues raised by the current circumstances which have created confusion as to what an employer's obligations actually are.

The starting point is that an employer cannot unilaterally reduce an employee's pay or hours of work without their consent.  There are limited exceptions to this where an employer has a "business interruption" or "force majeure" clause in their employment agreements.  These provisions can potentially be invoked where circumstances outside of the employer's control mean that it is unable to provide work to employees.  However the threshold for invoking these clauses is high and careful scrutiny would be required as to whether the specific wording applies to a pandemic situation.

What then is the justification for employers unilaterally reducing pay, or stopping paying employees?

The answer turns on the common law doctrine that if an employee is not "willing, ready and able" to work, they are not entitled to be paid. This might have been the case when people were required to self isolate prior to the lockdown. In this scenario the business was still operating but the employee was unable to work.

It becomes more complicated where businesses have been required to shut as a result of the lockdown. In this case the business is unable to fulfil its end of the wage – work bargain and therefore arguably still has to pay the employee.

The other ground that employers are relying on is a doctrine that is seldom relied on known as "frustration of contract".

This doctrine can be invoked by the parties to an employment agreement where the contract has become impossible to perform or has otherwise been frustrated.  It results in the parties being discharged from their obligations under that contract and brings the relationship to an end.

The difficulty with relying on this doctrine in the context of the current lockdown is that the employer would need to prove that it was impossible to perform the contract.  Given that the lockdown is temporary, and that the government subsidy is available to assist employers to pay wages, it may be difficult for employers to show that it is impossible to maintain the employment over the lockdown period.  At the very least they would need to demonstrate that they had exhausted all other options, including negotiating with employees to reduce their pay or to take leave.

Further, if a contract is frustrated, it ends automatically by reason of the "frustrating event".  It is hard to see how this could apply in a situation where the employment relationship is intended to continue after the lockdown.  It also does not provide a justification for employers unilaterally deciding to pay their employees 80% or less of their usual salaries – the contract is either impossible to perform or it is not.