BA is in the news again …

24 06 2009

BA has been in the news … again and, as usual, for all the wrong reasons. The company formerly claiming to be the world’s favourite airline has now asked 40,000 of its staff to not just take a pay cut but to work for nothing for a month to ensure the company’s survival.  Now there’s an enticing offer … not.

The offer to staff involves them either working without pay for up to one month, or taking unpaid leave for that time.  The deduction would then be taken out of their salary over a period of three to six months.  Willie Walsh, BA’s Chief Executive, has agreed to take zero pay for July but as his monthly salary is reportedly £61,000  he will have enough saved up not to need to worry about how to pay the milkman. I did hear on the radio (although I haven’t found it again in print anywhere) that some of the affected pilots were being offered equity in the company to make up for the shortfall, which could be a good bet, but why isn’t it being offered to all staff? 

Enough of this: what should an employee do when faced with this dilemma? Very few employees love their jobs enough to want to work for nothing.  On the other hand if accepting a temporary moratorium on pay would prevent redundancy then the issue gets more complicated. Even if true, will the salary sacrifice make much difference? Many of those affected will already be hard pressed paying their mortgages and credit card bills. Will building societies and credit card companies also agree to a reduction in payments to them? My guess is no. If I were an employee of BA my first thought would be to assess whether I believed Willie Walsh when he said that the company’s future was at stake.  On balance, BA should probably be applauded for trying to find a solution other than just slashing headcount.

The legal issue is really the same as I discussed in my earlier posts on pay cuts vs. redundancy.  An employer faces some tricky legal issues when proposing a pay reduction or, as here a complete pay cut. An employee, if not persuaded by management’s declarations of poverty, could claim constructive dismissal if the pay cut is implemented without their agreement.  Under contract law, any unilateral variation of the terms of a contract is a breach of contract.  When, as here, the term in question is fundamental to the very essence of the contract, a breach can be said to be “repudiatory”, meaning the employee can treat him/herself as being released from all obligations under the contract if he/she chooses to do so.   

An employer would be well advised to consult with employees if it wants to impose a pay cut or pay moratorium.  If more than 20 employees are involved then at least one month should be allowed for the consultation process, or three months if more than 90.  The reason for this is that if any employees don’t want to accept the proposed reduction, they could claim not only constructive unfair dismissal but also a “Protective Award” of one or three month’s pay depending on the number of employees involved. It follows from this that there is little or no difference, from an employer’s point of view, in conducting a redundancy consultation process or a pay cut consultation process. An employer that consults over a proposed pay cut will probably be able to demonstrate (to an Employment Tribunal) that it has tried to take all steps to avoid redundancies if that later becomes necessary.

The employer needs to move cautiously and carefully if it is to avoid claims by disaffected employees.  If any “sweeteners” can be given to staff (such as equity, or additional holiday) that is more likely to succeed.  If an employee refuses the pay cut/moratorium the employer could potentially dismiss that employee and state the reason for the dismissal as being “some other substantial reason”, which is one of the potentially fair reasons for terminating an employee’s employment under the Employment Rights Act, but a claim for unfair dismissal will probably follow if that employee has more than 12 months continuous employment experience.

Advice to both employers and employees: take legal advice before going down this route.  If anyone out there reading this works for BA please do get in touch and let me know your views and decision.

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