Recent reports suggest that the Rangers squad have been asked to take a 15% pay cut as a result of the £14.3 million losses which were announced by the Club last year. Yesterday afternoon, Rangers’ first-team apparently rejected this pay-cut proposal.
As an employment lawyer, this begs the question as to what employers can do in situations where they need to drastically reduce their cost base and limit any continuing liabilities.
In these circumstances, an employer has three clear options:
Agree a pay cut with its employees
A contract of employment is an agreement between both employee and employer. This contract can only be changed with the agreement of both parties. If an employer wishes to reduce an employee’s salary, it requires to obtain that employee’s consent before doing so. If an employer were to unilaterally (without the employee’s agreement) change a material term of an employee’s contract, that employee could be entitled to treat himself as constructively dismissed and receive compensation for his losses from an employment tribunal. For this reason, an employer would require to agree any proposed variation to the contract with the employee if it wanted to avoid such a claim.
Dismiss and re-engage employees on different terms and conditions
An alternative would be for an employer to give notice to its employees that their existing terms and conditions were to be terminated and, after this notice period had expired, the employees could be re-engaged on different terms and conditions. This “dismissal and re-engagement” procedure could still be challenged by an affected employee although it would be claim of unfair dismissal. An employer could successfully resist such a claim if it could demonstrate that it had good business reasons for the dismissal and re-engagement. Such business reasons could include the survival of the business, a much-needed increase in its efficiency or an essential reduction in costs. A tribunal could also take into account whether or not the employee acted reasonably in rejecting the proposed change when deciding if the dismissal was fair. If employers are seeking to conduct this type of exercise, they should be taking legal advice about it before commencing the procedure.
Conduct a redundancy exercise to reduce ongoing liabilities
The statutory definition of redundancy includes the situation where the requirements for employees to carry out work of a particular kind have ceased or diminished or are expected to cease or diminish. This would include the scenario where an employer is suffering losses and requires to re-organise the business in order to allow it to survive. Before carrying out such redundancies, the employer will require to consult with the affected employees. Depending on the number of proposed redundancies, the consultation requirements might include having to elect employee representatives as well as providing basic information about the proposed redundancies to affected employees. Ultimately the employer will require to meaningfully consult with the employees before taking the decision to dismiss. Redundant employees will also be entitled to receive a statutory redundancy payment, where applicable.
As far as the “Teddy Bears” problems go, it certainly does not sound as though they are having a picnic in the Ibrox Board Room. The next few weeks might include a series of financial keepie-ups for the club until one of the above options is agreed.
I would expect that Rangers fans will want the situation resolved as soon as possible so as to avoid a repeat of the events which occurred in 2012.
Clearly Rangers will require to carefully consider all of their options before taking any decisive action.Simon Allison Partner – Employment Law