Pay Cuts: Involve Your Employees. Most Will Agree Anyway

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There is no mistaking the fact that the economic residue of the COVID-19 pandemic is going to be massive. Even as early as now, signs of the impending devastation are very apparent. Companies have had to lay off employees, others have sent them on forced leave, while more recently, the option of imposing pay cuts has gained increasing traction.

It has been argued that given the grim times, and unprecedented circumstances we are having to face, navigating the wreckage of COVID-19 should not be stifled by too much insistence of legal nitty gritty, but that rather, affected persons such as employers may sit down and craft an approach that is acceptable to them from a humane point of view.

The biggest flaw in this argument is that it appears to relegate the legal side of things to the secondary, and treats legalism as a liability rather than a useful resource in this time of finding solutions. This argument is at its safest, a burning fuse especially since it has been predicted that there is likely to be a surge in litigation post COVID-19 as affected persons seek to navigate the wreckage of the pandemic.

It is true that the challenges posed by the pandemic have evolved faster than efforts to address them. Nevertheless, in finding creative solutions to these challenges, it would be unwise for companies to opt for approaches that leave them prone to legal action and a consequential threat of further damage in legal fees and compensation to the litigants.

In Uganda, most employers have had to seek refuge in effecting pay cut for their employees. Many of them have done it in silence but sometimes a number of them make it to the social media. In a circular of April 28 for instance, the Kabaka of Buganda through the office of the treasury communicated that staff would be paid 75%, 50% and 25% of their salaries for the month of April. Vision Group announced as well in an internal memo that it would effect a gross salary reduction effective May 2020 of 60% for persons earning above UGX 19M, 45% for those between UGX 8M-19M and 40% for those below UGX 8M.

While this is a pragmatic way of dealing with the challenge, employers need to understand that the pandemic has not suspended the obligations of the parties under the employment contract. Employees are still under contract, which by its very nature is a binding agreement between them and their employer.

To vary the terms of the employment agreement (inclusive of the term on payable remuneration), employers are by law, required to reach a consensus with the employees. Depending on the terms of the employment contract, the amendment / variation may be express or verbal. The courts have in many cases emphasized that any purported amendment to a contract made without the consensus of both parties is void and of no consequence. See For instance Kinyara Sugar Works v Hajji Kasimbiraine HCMA 151/2017.

Needless to mention as well is that the variation must follow all the necessary protocols required by law. For instance, each of the parties would have to furnish fresh consideration. Good enough, the Contracts Act 2010 has in section 2 guided that consideration need not necessarily be positive, as loss, forbearance and detriment may suffice.

From the language used in both circulars to staff of Buganda Kingdom and Vision Group, it is easy to note that there was no consultation or involvement of employees in the variation of their contracts to effect pay cuts and (or) proposed pay cuts.

In the very first paragraph of the circular by the Kingdom of Buganda for instance, it is stated:

“….management deliberated and agreed that it is unable to pay your monthly salary.” In the third paragraph, staff members are encouraged to “…..consult the Human Resource Manager and your respective Heads of Department for details”

The internal memo from Vision Group states that “…following consultation with the board, it was decided to undertake the following measures.” And then it goes on to list the structure of the agreed pay cuts.

For both entities, it can easily be seen that the decision to effect pay cuts was deliberated on only by the management and the respective decisions (seen as final) merely communicated to the employees, who are expected to agree to them.

This approach is legally incorrect and may inflict far-reaching consequences. Ultimately, and if the situation does not improve, some of the employees will have to be laid off owing to restructuring for economic reasons.

In the event that such employees choose to prefer legal action against their employer, grounds such as unilateral variation of their contracts to effect pay cuts will be good grounds to incorporate in a letter of complaint to the Labour Officer.

Any approaches to addressing challenges caused by COVID-19 should not be rushed so that the prescriptions themselves don’t turn out to be counterproductive in the very end. Employers would not prefer to be in the unfortunate position where condemnation in damages upon successful litigation by their employees comes off as a rightful comeuppance for their lack of focus and consultation in the end.


 

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