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Pay cuts

Pay cuts

A company must be in a precarious situation before employees agree to accept a pay cut. Pay cuts normally only become a last option when a business is struggling to survive and to save jobs.

A pay cut requires agreement

Employers cannot unilaterally cut an employee's pay. Pay is individually agreed between the employer and the employee, and a company cannot unilaterally change the agreement it has made with each employee.

Have you been asked to take a pay cut?

You should contact NITO.

It is also important to emphasize that a company and its union representatives cannot agree that the employees will take a pay cut.

This requires a separate agreement, an acceptance from each individual employee. If the company wishes to implement a pay cut, the matter must be discussed with the employee representatives.

The union representatives can agree on the need for a pay cut and can recommend their members to accept one. For this to happen, the company's situation must be precarious. The employee representatives ought to negotiate and set demands and conditions before recommending a pay cut.

The union representatives can recommend that their members accept an agreement to reduce their pay. In order to propose such a recommendation, the union representatives must negotiate with the company and agree on binding conditions that are set out in writing and signed by both parties.

To employees who are asked to take a pay cut:

  • The company cannot unilaterally cut your pay. This requires an agreement between you and the company confirming that you accept a pay cut.
  • Your union representative cannot agree a pay cut on your behalf – you must explicitly accept it yourself.

Negotiation points and demands in negotiations over potential pay cuts

This list is not exhaustive, and the demands will of course vary depending on the company's situation:

  • Negotiations should be conducted regarding cutting costs other than pay, overheads, etc.
  • No or few dismissals/lay-offs must be implemented during the pay-cut period.
  • Working hours must be reduced commensurate with the reduction in pay.
  • The pay cut must be a temporary measure.
  • The pay cut must be reimbursed at the end of the pay-cut period.
  • The pay cut must apply to the management (a cut in fixed salary, not just a cut in bonus schemes).
  • The pay cut must be revoked when specific results are achieved during the pay-cut period, and the reduction in pay must then be reimbursed to the employee.
  • The pay cut is accepted provided that no dividends/group contributions are paid to the group/owners during the pay-cut period.

All employees and all unions must accept the pay cut in order for each employee to be bound by the agreement regarding the pay cut (examples of unrest in companies if differences apply here).

Anyone who is dismissed during a wage-cut period must receive normal pay during the notice period and be reimbursed retroactively for the reduction in pay that was imposed during the period. The employees have contributed to a form of collective effort, and the issue may also have significance should the company go bankrupt.

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