Q&AMay 30 2018

Take care before reversing a reward

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Take care before reversing a reward

Q. We have given one of our employees a pay rise; can we legally retract the pay rise if they inform their colleagues of it?

A. The topic of pay rises can be a sensitive issue and one that can easily threaten workplace cohesion and sow discontent, therefore it is understandable that employers often attempt to prevent these discussions at all costs.  

It is a common school of thought that it is unprofessional for staff to discuss pay rises with colleagues; however, it would be naive to think it does not happen. Although it is rare to retract the pay rise of an individual who has shared this information with their colleagues, it is possible to do so, under the right circumstances.

Employers wishing to retract pay rises will need to have constructed their employee contracts accordingly. The inclusion of a carefully worded pay secrecy clause, explicitly stating staff are prohibited from discussing details of their salary or bonus entitlements with their colleagues, will provide the scope to retract pay rises in these situations. Employers should remind staff of this contractual term during pay review meetings, as well as in any subsequent letters confirming a change in salary. It should be noted that even with these provisions in place it may still be difficult to retract an employee’s pay rise simply for discussing it with their co-workers.

The main hurdle employers will face when trying to retract pay rises is that, as per Section 77 of the Equality Act 2010, staff are legally able to circumnavigate pay secrecy clauses providing the purpose of their discussion relates to questions surrounding equal pay practices. This provision is designed to increase transparency around equal pay and prevent individuals with protected characteristics from suffering at the hands of discriminatory pay practices. With this in mind, it may be best to avoid punishing employees for discussing pay rises altogether. Even if you do not believe these discussions relate to equal pay, you should consider how difficult it may be to prove.

Employers should also bear in mind the impact that retracting a pay rise may have on the employee in question. Pay rises are typically issued as a reward for performance and taking this away could very easily reduce workplace morale and lead to valuable individuals seeking alternative employment. Instead, employers may choose a less severe punishment for those found to be discussing their pay rise with colleagues, such as issuing a formal warning on the matter.

While employers can retract pay rises providing they have the relevant contractual clause in place, they are advised to consider the true implications such an action may have on workforce morale and retention rates. Additionally, given the recent media attention on equal pay following the gender pay gap reporting requirement, employers would be wise to refrain from preventing general discussions surrounding pay to avoid accusations of hiding unlawful pay practices.

Peter Done is managing director of law firm Peninsula