A recent High Court case has found that there is no reason why the provisions of the Payment of Wages Act 1991 allowing an employee to make a complaint to the Rights Commissioner concerning deductions from wages cannot also apply to reductions in wages.

There had been some uncertainty in recent years as to whether “reductions” in wages come within the scope of the Payment of Wages Act, or whether the legislation regulates only “deductions” from wages. In this recent decision, the High Court has brought welcome clarity to the ensuing “reduction versus deduction” debate.

The employer, who was in financial difficulty, implemented a 10% pay cut across its workplace. Some employees challenged this pay cut before the Rights Commissioner, who held that the 10% reduction was unlawful. The Employment Appeals Tribunal (the Tribunal) upheld the decision of the Rights Commissioner.

The employer appealed the Tribunal decision to the High Court on a number of grounds, including that the reduction in pay was not a “deduction” under the Payment of Wages Act, and so could not be challenged before the Rights Commissioner.

The High Court held that an earlier decision which indicated that reductions in wages were not within the scope of the Payment of Wages Act related only to the reduction in an allowance payable in respect of expenses. It noted that expenses are expressly excluded from definition of “wages” in the Payment of Wages Act. It held, therefore, that the earlier decision was not envisaged to apply to reductions in wages and that such a reduction could fall within the scope of the Payment of Wages Act.

Given this clarification that the Payment of Wages Act applies to reductions in wages, employers are reminded to follow full and fair procedures before implementing a pay cut in the workplace. Employers considering pay cuts should consult with employees and, where relevant employment contracts do not explicitly permit the employer to reduce employees’ pay, consent should be obtained from affected employees.