Pay cuts and collective consultation

THOSE of you who have been following Ryanair's dispute with its pilots may be tempted to conclude that the employer cannot always impose its own will on the workforce and that winning hearts and minds is the better strategy.

When businesses want to embark on a change programme, they need to think about the employee relations aspects and also about the legal framework. I am often asked whether the employer needs to "collectively consult", which is the statutory duty to consult with representatives of the workforce over a minimum period of time. This duty applies to a proposal to dismiss at least 20 employees over a set period. Redundancies clearly fall into that type of scenario. But what about proposals to change employment contracts, such as proposals to cut pay? The employer's aim here is not to reduce headcount but to make cost savings. If the employer does not want employees to be dismissed, can the statutory duty to consult still apply?

Last week the European Court said yes to this question. In the Socha case, a hospital in Poland gave notice to its employees that it was cutting their length of service award, which was an element of their pay. The hospital was aiming to reduce costs, not reduce headcount. It therefore made a unilateral change (with notice) to the employees' terms, without any consultation. The European Court held that the duty to collectively consult applied and that the hospital had failed to comply.

The Court reasoned that since the hospital was trying to push through the pay cut in order to cut costs and avoid making redundancies, it should have expected that some employees would not accept the change to their terms and that, as a result, their employment contracts would be terminated. It followed, according to the Court, that the hospital "contemplated collective redundancies" and should have followed the statutory consultation process.

This type of scenario gives rise to a dilemma for employers. Running a collective consultation process requires the employer to say at the outset that employees will be dismissed if they do not agree to the change in terms. How do you win hearts and minds when you start with a threat like that?

The interactive session at the Annual Employment Law Conference on November 9 will explore this challenge and some of the other tricky areas around changing terms and conditions. I look forward to seeing you there.