Faced with sharply declining revenue and an uncertain future, many employers introduced pay cuts at the beginning of the COVID-19 pandemic in order to avoid making redundancies. 

Yet there have been surprisingly few cases relating to these pay cuts to date.  This may be due the general level of acceptance by staff that pay cuts were unavoidable given the unprecedented circumstances.  Delays in arranging remote hearings and, more recently, the impact of the Supreme Court's Zalewski decision, which held that certain of the Workplace Relations Commission's ("WRC") procedures are unconstitutional, may have also been factors.

A recent WRC Adjudication Officer decision clearly demonstrates the position that is likely to be taken in subsequent COVID-19 related pay deduction claims.

Payment of Wages Act, 1991 

Under the Payment of Wages Act, 1991 ("Wages Act"), employers are prohibited from making deductions from an employee's pay except where the deduction is:

  • required or authorised to be made under statute or statutory instrument;
  • required or authorised by a term of the employee's contract of employment; or
  • consented to by the employee in writing.

There is no exception under the Wages Act for exceptional circumstances.

It is clear from the Wages Act, that it is unlawful for an employer to implement a pay deduction in the absence of a statutory or contractual entitlement to do so or without the employee's consent.

Analysis of this Decision

In A Project Manager / Translator v An Interpretation and Translation Group, the employer had imposed a 15% pay cut across its workforce due to expected revenue losses caused by COVID-19.  The pay cuts were imposed in March 2020 and normal salary was restored in June 2020 after it became clear that the business would not be as severely impacted by COVID-19 as had been expected.  Upon notification of the pay cut, the employee informed the employer by email that she did not agree with the pay cut.  However, she stated that she was "open to discuss proposals in order to reach an agreement that would suit everyone".  The employer did not consult with the employee but instead unilaterally imposed the pay cut.  The employee submitted a claim to the WRC under the Wages Act seeking repayment of the deducted amounts. 

At the WRC hearing, the employer argued that the pay cuts were applied across the workforce without exception, that the majority of employees did not object to the proposed pay cuts, and that the employee's contract of employment contained a variation clause permitting the employer to make reasonable changes to the employee's terms and conditions of employment.  The employer submitted that the pay cut was a reasonable exercise of the variation clause. 

In her decision, the Adjudication Officer ("AO") accepted that the pay cuts were imposed as a result of the financial difficulties caused as a result of the COVID-19 pandemic.  However, she was critical of the employer and held that the imposition of pay cuts was not reasonable or proportionate considering it is a multinational company and the work the employee was engaged in was not greatly impacted by the pandemic.

The AO was clear that variation clauses do not permit an employer to make changes to an employee's terms of employment without the employee's consent.  She stated that variation clauses are intended to permit minor non-material changes, which do not relate to core terms, such as updates to reflect changes in law or a change in a work practice. She also noted that imposing pay cuts, even of a temporary nature, without consultation or consent, by reliance on such variation clauses is not reasonable.

The company was ordered to repay the employee the amount deducted from her pay during the earlier period of deductions between April and May 2020, but not those deductions which took place in June 2020 as they were outside the jurisdiction of this case.  Compensation for claims under the Wages Act are limited to the value of deductions made within the six-month period (which may be extended to twelve months if there was reasonable cause for the delay) prior to the submission of a claim under the Wages Act.  Therefore, orders could only be made in respect of those deductions which preceded the date on which this complaint was made.

Key Takeaways for Employers

  • Variation clauses do not permit employers to change an employee's terms of employment but may be used to make changes to work practices.
  • Employers may make changes to terms of employment with an employee's consent, which may be express or implied consent.
  • Consent may be implied if an employee fails to object to a change over an extended period of time.
  • If an employee expressly objects to a proposed change, the employer is on notice that any attempt to unilaterally impose the change is unlawful.
  • Exceptional circumstances alone do not justify deductions under the Wages Act or unlawful changes to an employee's terms of employment.
  • Employers should engage in an information and consultation exercise with staff before implementing any material changes to contracts of employment.
  • The AO's comments suggest that large multinational employers may be held to a higher standard than smaller, less profitable enterprises.  It may also prove more difficult to justify imposing such measures across all staff where their work has been impacted to varying degrees and not all roles would be at risk of redundancy.
  • Compensation for claims under the Wages Act is limited to the value of the deductions made in the six months prior to a complaint being referred to the WRC.  If deductions have ceased more than six months ago, either due to pay restoration or the employee departing the business, previous deductions cannot be recovered under the Wages Act at this stage.  Under the Wages Act, deductions made after the date of a complaint could only be recovered by a subsequent complaint.
  • Employees who are statute barred from making a compliant under the Wages Act could sue their employer for breach of contract before the civil courts within six years of the deduction(s).