In a tough economic climate, businesses will sometimes look at reducing wage expenditure to cut costs.

But can you legally reduce an employee’s pay?

A quick online search will reveal scratch-the-surface information from a few websites that basically state that Australian employers can reduce an employee’s pay if they agree to it – or if they don’t, employers can look at making the employee’s position redundant instead, if the reason for the redundancy is genuine.

One small company director in Sydney presumably thought that was all he needed to know and do.

Not that simple.

And after the Fair Work Commission (FWC) was informed about his bodged redundancy attempt, things quickly fell apart.

On a Thursday afternoon, Javier Vilches, owner and sole director of Email Ventilation Pty Ltd, told an employee as he was leaving work that he could no longer afford to pay him his current rate of pay and that he would have to accept a 22% pay cut.

The senior sheet metal worker rejected this, but said he would think about it over the weekend.

Mr Vilches demanded that the employee of 12 years hand over the factory key and told him not to come into work the next day.

Worried that he would lose his job, the employee went to speak to his union representative to learn about his rights. When he found out that the employer couldn’t just drop his pay, he returned to work the following Monday.

Mr Vilches gave the employee an ultimatum to accept the pay cut, or leave. The employee left, telling Mr Vilches he was going to the union.

“You do whatever you want,” Mr Vilches said.

On his way to revisiting the union rep, the employee received a text from Mr Vilches which read:

“All I am trying to do is keep going and survive through this tough period … if you prefer to move on, there is nothing I can do. Please let me know what your decision is, whatever it turns out to be, I wish you success.”

The union rep said he would speak to Mr Vilches. Mr Vilches then sent the employee another text that afternoon:

“Effective immediately I give notice of termination of your employment, please note you are required to work your notice period.

“Please note that your [sic] are entitled to 4 to 5 weeks employment termination notice period.“

The employee returned to work and served out his notice, but at the end was not paid outstanding entitlements or superannuation and had not been provided with a certificate of service.

He then took the matter to the FWC.

In a form responding to the unfair dismissal application, Mr Vilches raised what Deputy President Peter Sams described as “three alternative, but irreconcilable objections to the application”.

“[F]irstly, that there was no dismissal; secondly, his dismissal was a case of genuine redundancy; and thirdly, as a small business [the employer] had complied with the Small Business Fair Dismissal Code,” Deputy President Sams said.

In explaining the objections, Mr Vilches said “[The employee] was not dismissed; it was a mutual agreement after he was offered a pay reduction and he did not agree and said he preferred to leave his employment”.

Mr Vilches then failed to turn up to two scheduled hearings and did not file any evidence.

When the director finally appeared at the third hearing, he was berated by Deputy President Sams who described his actions as “disgraceful and grossly unfair”.

And he found the document Mr Vilches eventually submitted was no more than a “potpourri of submission, commentary, conjecture and opinion”.

“Given he was unrepresented, to the extent it can be so described, I shall regard this document as his evidence,” Deputy President Sams scoffed.

In the hearing, Mr Vilches claimed the employee’s refusal to accept reduced pay was not the main reason for his dismissal and that he was spoken to numerous times about performance and behaviour issues, namely being that he:

• did not allow other employees to learn the work or use the machines;
• was abusive and unfair to any new employees; and
• did not give new employees access to proper PPE (personal protective equipment) when available and necessary, on one occasion making a new employee cry because of the way he treated him, including by screaming at him.

However, Mr Vilches said that it was never his intention to dismiss the employee and conceded that his job was still required.

The director described business conditions as “tough” over the last few years, but he did not provide any evidence of the company’s financial position and even acknowledged that labour was not a “big cost” in running his business.

“Mr Vilches tendered no evidence of the company’s financial position, and simply expected the Commission to accept his ‘say so’, as to the dire financial circumstances he was in,” Deputy President Sams said.

“That is not good enough.

“It is indicative of Mr Vilches’ cavalier, almost dismissive approach to this entire matter.

“Let me be clear: for an employer to claim financial difficulties as a reason to make an employee/s redundant, requires clear and cogent evidence of the financial state of the business, or any associated entities. Mr Vilches failed to do so.

“In my view there can be no room to doubt that the reasons for the dismissal were not only capricious and fanciful but were contradictory and irreconcilable

“Although I accept [the employer] is a small business and has no dedicated human resource management expertise about procedures to be followed when effecting an employee’s dismissal, it must be bluntly said that no employer with any sense of common decency, would have effected a dismissal in the hopeless manner admitted to in this case; particularly given the applicant’s value to the business and his long period of service.

“It was disgraceful and grossly unfair.

“[The employer’s] approach in denying [the employee] proper and fair procedures cannot be put down to naivety or ignorance. It was deliberate and calculated.

“The size of the employer’s business and lack of industrial relations expertise, simply does not ‘wash’, as any excuse for the lack of any fair procedure in this case,” he said.

Deputy President Sams found that reinstatement was not appropriate and directed both parties to file further submissions so he could determine an appropriate level of compensation for the employee.