Salary Reduction Clauses

Avoiding redundancies due to the COVID-19 related downturn

Non-unionised employees, not subject to a collective agreement, nor represented by a works council.

No action may be unilaterally taken to reduce pay, even temporarily, without an employee’s individual explicit, written consent – and only if a contractual clause is in place to allow the measure to be introduced. It is also necessary to explain all the circumstances to employees, outline policy options, give them a chance to respond and time to consider a proposal. 

The measure must be clearly time-limited and advance warning given if the period of salary reduction needs to be renewed. No such policy will work unless all levels of employee suffer equally, or those in senior jobs take larger reductions than those in junior positions – and this is communicated to the workforce. Protection must also be given to the lowest paid. However, unless there is 100% agreement a partial introduction will not be possible – for instance, because of equal pay considerations. The only alternative is redundancy.

There also needs to be provision for a second form of job protection through temporary lay-off (Clause 2).

Sample contractual clauses (use one or both)

  1. Contingency measures: We all need to face – as a commercial organisation – good, as well as bad, times. The company wishes to take every step possible to avoid redundancies during economically difficult periods. For this reason, the company’s first step when faced with a crisis will be the introduction of a minimal salary reduction, which will need to be shared by all employees on a temporary basis. The employee explicitly agrees that, subject to consultation and specific safeguards being put in place, such a measure may be introduced for a specified and agreed period. If circumstances do not significantly improve, then the company will give advance notice that the reduction will be continued for another specified period.
  2. If the salary reduction approach does not meet its objectives, and further savings need to be made, the next step to avoid redundancies will be temporary lay-off on a full, or part-time, basis. This will normally be undertaken through a government support scheme that will provide state allowances for economically inactive time. If such a scheme does not exist in a country of employment, a flat-rate allowance will be paid by the company. If individual employees are experiencing special difficulties, then they should contact the HR department to determine what additional help may be available. Once again, this measure will be introduced for the minimum time necessary for the company to recover its solvency and regain profitable growth. The employee explicitly agrees that this will be the necessary second step, provided that they will be fully consulted before any such measure is undertaken. It is the company’s intent to protect jobs and the essential interests of its employees at all times.

Drafted by, and copyright held by, FedEE international Inc.  March 2020. Members of the Federation of international Employers (FedEE) may freely use this material for internal management purposes

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