Cut costs, not jobs

If you don't know someone who's had to go through the trauma of job cuts at their company in the past year, you must have a collectively lucky group of friends. Job losses continue to make weekly, if not daily, headlines as the recession persists, and while pharmacy is arguably more credit crunch-resistant than some sectors it is certainly not immune.

Pharmacies from independents and small chains to the UK's third largest multiple, The Co-operative Pharmacy, have all had to make staff cuts over the last 12 months. But there are ways businesses can attempt to reduce their staffing costs without reducing the number of people they employ Ð all with different legal obligations for the employer and options available to the employee.

In the current economic climate, employers might consider: changing shift patterns or reducing overtime; cutting back on benefits such as contractual sick pay, holiday pay and private medical insurance; freezing wage levels or minimising bonuses.

Some of these changes may be authorised by the employment contract or the contract might allow the employer to withdraw a discretionary benefit at any time. However, even if a benefit is non-contractual or discretionary, the employee may still be entitled to it if it has been provided consistently over time.

If employees refuse to agree to such changes, employers may try to impose a change unilaterally, arguing that those who continue to work without protest by implication agree to the change. The implied agreement test is more likely to be met if the change has an immediate impact, such as a pay cut, than if the change is not felt for some time, such as cuts to redundancy pay or pensions. However, employees who object to the changes may resign and claim constructive dismissal or refuse to work under the new terms, forcing the employer either to dismiss them or let them continue on their old terms. Perhaps more likely in the current climate is for an employee to agree to work 'under protest' and seek damages for any loss they suffer as a result of the change.

Employers with good business reasons for cutting pay or benefits may dismiss employees and re-engage them on revised terms if their earlier attempts to persuade employees to consent to the change have failed. Provided employees are given proper notice of dismissal, there can be no claim for breach of contract. Conversely, employees may have unfair dismissal claims, but employers who have acted reasonably by consulting with employees about possible alternatives will have a better chance of defending these, particularly if the employer can show that jobs would be at risk or the business would suffer if cut-backs are not made.

Can employers facing financial difficulties cut back on staff bonuses? The answer depends largely on whether the bonus is contractual. If it is, and the employer has promised to pay a particular bonus, it is difficult to go back on that. An entitlement to a bonus might be found not only in the employment contract, but also in a verbal promise or an email from a manager, or through custom and practice where the bonus has been paid year on year. In these circumstances, failure to pay is likely to be a breach of contract, giving the employee the right to claim damages or resign and claim constructive dismissal.

On the other hand, if the bonus is discretionary, employers will usually have greater scope for reducing its size. Provided objectively justified factors are considered and clearly documented, it will be difficult for an employee to challenge the size of a discretionary bonus.

However, even discretionary bonus schemes may not allow nil payments; depending on the bonus criteria and targets, a refusal to pay a bonus at all may be an unreasonable exercise of the employer's discretion.

Unless the employment contract specifically allows for reducing the hours staff work, it can only be done by agreement with employees.

Without agreement, forcing employees to work reduced hours and take a pay cut would, almost certainly, give employees the right to resign and claim constructive dismissal.

Other practical ways of temporarily reducing salary costs may include encouraging staff to take sabbaticals or unpaid leave. Alternatively, employers can seek requests from staff to work flexibly through part-time, home-working or job-sharing.