The Case

Wellpark Holdings Pty Ltd (Wellpark) terminated Mr Piggott’s employment because he refused to accept a 10% pay cut. Wellpark was struggling financially and had cut costs in every other part of its business prior to requesting all employees to accept a 10% pay cut. Mr Piggott was the only employee to refuse the pay cut.

All employees except Mr Piggott had been consulted about the pay cuts. They were told that to continue to employ staff, Wellpark needed to cut their pay for a couple of months for the business to get back on its feet.

Unfortunately, at the time Wellpark had these meetings with employees, Mr Piggott was on annual leave. Mr Piggott returned to work on 4 January 2016, and was given a letter on 11 January, indicating that he had until close of business on 15 January to accept the new contract of employment agreeing to the 10% pay cut, or his existing contract of employment would be terminated on 25 January 2016.

The Verdict

The Fair Work Commission (FWC) held that Mr Piggott’s refusal to accept a pay cut was not a valid reason for terminating his employment. The FWC said that Mr Piggott should have been treated like other employees and provided with a better explanation about the pay cut.

The FWC estimated that 2 weeks should have been provided to have appropriate discussions and consultations with Mr Piggott. As Mr Piggott did not request reinstatement, monetary compensation of 2 weeks (i.e. $3,259.70) was ordered to be paid.

The Lesson

The FWC, by this decision, appears to accept that employers can have a legitimate basis for requesting employees to take a pay cut where the financial circumstances of the business require this and all other cost-cutting measures have been made. However, you should exercise great caution when dismissing any employee for refusing to take a pay cut.

Remember, when requesting employees to take a pay cut, the following applies:

• you are required to consult with employees;
• employees must be paid at least the minimum rate of pay under the applicable award;
• if employees are required to accept a pay cut, this may result in a redundancy if an employee refuses to accept it; and
• terminating an employee because they refuse to accept a pay cut may result in an unfair dismissal claim, general protection claim or breach of contract claim.

Given the significant risk of legal action, it would be prudent to consult with a lawyer if you are considering reducing an employee’s salary.

Please note: Case law is reported as correct and current at time of publishing. Be aware that cases in lower courts may be appealed and decisions subsequently overturned.