One of the most common questions we get from employers due to COVID-19: It is hard for the Company to sustain at the moment and without any cost cutting measures; can the Company impose forced leave, pay cuts, reduction in benefits or working days on employees?
Unfortunately, the short answer to this is no, unless you have an internal policy or a clause in your current terms and conditions allowing you to do so. All instances listed above amount to a variation of contract. To successfully vary a contract (of employment), both parties must consent to a change. Nonetheless, for companies to sustain and remain competitive in this current situation, cost cutting measurements are inevitable. Fret not, as we have recommendations on strategies to obtain consent from employees for the Company to impose certain measures.
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Logically it’s hard to obtain such consent as employees will not be willing to have their salaries affected, and this is why communication is key. At this point, it is crucial for companies to be transparent in relaying the message to the employees when the company has tried exploring other options but has no choice than to proceed with these exercises.
Companies are advised to have a townhall session with all employees to share that if the business continues to suffer, the Company may have to shut down its operations which means employees may lose their jobs. Therefore, the Company is proposing a reduced work week of 16% fewer working days in a month in return of a 15% pay cut, for example. During this crucial period, employees’ understanding is needed to keep the Company going, and management will promise to gradually increase the working days as the situation improves.
Companies should also address that although getting a pay cut doesn’t look or sound good, employees should know that it is better to be in employment during this critical time where companies are freezing their hiring exercise, looking at the current economic climate.
If a Company has to shut down temporarily and reduce the pay scale of employees, it is again advisable for the Company to obtain consent through a townhall. To smooth the process of getting consent, employees should be ensured a certain percentage of their salary even when there is no work for a period of time. During that time, they are free to perform work anywhere else as long as it is not in direct competition with the business of the Company. Simultaneously, Companies should consider rolling out a VSS package for employees who do not want to continue their employment with the Company under these circumstances.
We hope that this article can provide you with some general insights on the workaround in obtaining consent from employees for the implementation of cost cutting measures. Although there is no one prescriptive solution for every employer, the solution for every Company should be individualised according to its circumstances.