As the Prime Minister, senior public servants, mayors and business leaders across the country agree to pay cuts in order to lead by example and do their bit, many less well-off New Zealanders are being compelled to accept pay cuts or lose their jobs.

Recent examples include employees of The Warehouse who have been asked to accept pay cuts of between 10-20% or face “other options including potential redundancy”.  Restaurant Brands has also asked staff to accept an indefinite reduction in their hours and to be available at two hours’ notice for a shift. 

The company advised its employees “If you do not respond to us by the due date above, then we will assume that you are not able to and/or do not want to work your shifts when our stores reopen.  In that event, redundancy may be a potential outcome and we would comply with your employment agreement”.

Unite Union National Secretary Gerard Hehir has accused Restaurant Brands of using “bullying and intimidation” tactics to force employees to accept reduced terms and conditions.

This raises the question of whether employers can compel employees to agree to pay cuts under threat of redundancy?

The Employment Relations Act requires parties negotiating for an employment agreement to act in good faith.  This also applies to bargaining for any variation to employment agreements.  In this context, “good faith” means that the employer cannot be misleading or deceptive, and if an employee’s job is on the line, they must provide access to all relevant information.

The tactics demonstrated by The Warehouse and Restaurant Brands would not necessarily breach good faith, provided the statements made by the company were authentic.  In other words, is the financial situation facing those companies such that employees may genuinely be made redundant if the company was not able to cut labour costs.  Employees would be entitled to request proof that this was in fact the case.

There is then a separate question as to how the “agreement” is being procured.

The Act provides that bargaining for an individual employment agreement will be “unfair” if the employee is induced to enter into the agreement by oppressive means, undue influence or duress, and the employer knew or should have known this.

It is certainly arguable that telling employees they must accept indefinite pay cuts or face redundancy is oppressive and amounts to undue influence.  However the legal threshold for determining this is relatively high. 

In a recent Employment Court decision (Sawyer v Vice Chancellor of Victoria University of New Zealand), an employee claimed that the Settlement Agreement that she had entered into should be declared unlawful because she was under duress when signing it. 

The Employment Court rejected her argument on the basis that there is a difference between being under pressure and being under duress.  Further it would be fair to say that most employees who end up in a position where they are negotiating a settlement with an employer are under “pressure” of sorts, and agreements should not be invalidated on this basis.  The fact that the employee had legal advice throughout was also found to be relevant.

Applying this to the forced pay cut scenario, there are a number of factors that will likely determine whether the employer’s actions are in fact unfair (from a legal as opposed to a moral perspective) in any case.  Firstly, is the employer genuinely in a position where it needs to achieve pay reductions in order to save jobs, or is this an opportunistic attempt to simply cut costs?

Second, have employees had the chance to take advice and provide informed consent?  The approach taken by Restaurant Brands does not appear to allow much room for negotiation and agreement.

Third, is the “offer” to employees framed in a reasonable way?  It is not necessarily unreasonable to advise employees that if they do not agree to pay cuts, redundancies could result.  But if this is done in a bullying and intimidating manner, as Unite union claims has occurred in the case of Restaurant Brands, it may be unreasonable.

Interestingly the “unfair” bargaining rules that relate to individual employment agreements, do not apply to the negotiation of collective agreements, including variations, in the same way.  This is because of an assumption that unions will represent members in bargaining for collective agreements, and therefore they do not need this same level of protection.

In this environment many employees will end up agreeing to pay cuts in order to save their employment, and we need to trust that employers, especially large ones with resources, will not take advantage of this.  If they do, it is right and proper that they be held to account.