Hybrid hiatus: What are the risks of offering WFH employees reduced salaries?

During the pandemic, many employees have seen the benefits of working from home; greater flexibility, time at home with families, saved time on commute, mental and/or physical health benefits and so on.

There are benefits for employers too who can save on office space and administrative costs, a more satisfied and potentially a more diverse workforce due to broadened prospective talent pools. However, some argue workers are less productive when unsupervised at home and lose out on the networking and team building opportunities that come with being in the office.

Post-pandemic, employers started offering employees incentives to come back into the office, but some are now taking a tougher stance by offering reduced salaries to those who work remotely full-time. According to a survey of over 1,000 employers by the Chartered Institute of Personnel and Development (CIPD) published in May 2022, it was found that one in ten companies plan on reducing pay or benefits for home workers.. The survey also identified that 4% of companies have already reduced pay or benefits for those who continue to work remotely, while 13% are on the cusp of doing so. 

A London law firm also recently hit the news for offering staff the opportunity to work completely from home on a permanent basis (except for an expensed trip to the office once a month) in exchange for a 20% pay cut.

What are the risks if you asked your employees to do the same? There are both legal and practical implications that you should consider. We have summarised both below.

Legal Implications

Direct Discrimination

If a pay cut for remote working was only enforced against (or affected) a limited group of people, for example women, they may bring a claim of direct discrimination on the basis of sex. The employer may view this as a way of supporting women with childcare responsibilities however this would arguably be direct discrimination. Direct discrimination cannot be justified, apart from a limited exception in relation to age.

Indirect Discrimination

Even if a company offers (or enforces) the new terms to all employees with blanket policies, they could be at risk of indirect discrimination claims. Indirect discrimination is where a provision, criteria or practice (PCP) is applied to a group of people and would put an individual with a protected characteristic to a particular disadvantage.

Despite changes in societal norms, women disproportionately bear the burden of childcare, therefore are likely to be attracted to working from home. Therefore it could be argued that if flexible working is being used by a woman with childcare responsibilities, the fact that they receive a lesser wage could be viewed as indirectly discriminatory in light of their disadvantage (the burden of childcare which makes it harder for them to work in the office every day) and protected characteristic (sex). Similarly, where an individual works from home as part of a reasonable adjustment for an employee with a disability, a pay cut for that individual could be viewed as indirect discrimination.

This could lead to claims being brought in the Employment Tribunal where, if successful, there is no limit to the compensation that can be received. In some cases, an employer may be able to avoid indirect discrimination claims by showing that its actions were a proportionate means of achieving a legitimate aim; this is known as objective justification. In this context, an employer would need to be able to justify that the reduction in pay was a legitimate and proportionate measure, for example using the London law firm example, by showing that an employee saved 20% of their wage by working from home (rather than commuting regularly).

Discrimination arising from Disability

As mentioned above, a reduced pay policy for those working remotely may adversely affect those with disabilities which could also give rise to claims. Employees with long-term health conditions, such as immunodeficiency disorders, asthma or generalised anxiety disorder, may have stronger concerns around regular commuting and working in shared spaces. Where these disorders are considered disabilities under the Equality Act 2010, they may result in claims. 

Discrimination arising from disability is where a respondent treats a claimant unfavourably (lower wage) because of something arising in consequence of their disability (need to work from home). Just as with indirect discrimination, this can be objectively justified if the actions taken are a proportionate means of achieving a legitimate aim.

Equal Pay Legislation

There may also be equal pay issues if the same work is being carried out by a female home workers compared to a male office worker for less pay. Under the ‘equal pay for equal work’ principle enshrined in the Equality Act 2010, a person must not get paid less compared to someone of the opposite sex doing the same or equivalent work for the same employer. Therefore, if it is predominantly women who take the pay cut to work from home, they will be paid less than their equal male office counterparts, which will potentially give rise to risk of equal pay claims. 

Flexible Working Requests

All employees with 26 weeks continuous employment have the statutory right to request flexible working. Employers must deal with these requests in a 'reasonable manner' and can only reject the request on one or more of 8 specific statutory grounds. It is very important that employers consider the requests carefully and assess their business needs as well as the legal grounds to refuse. Employers should also bear in mind indirect discrimination risk and consider whether the individual has a protected characteristic. If a claim is not considered in a 'reasonable manner', i.e. without a valid business reason or in time (3 months), the employee can bring an Employment Tribunal claim. It is also worth considering that taking action on remote working may result in an influx of such requests, which the company will have to deal with accordingly.

Contract Core Terms

Practically, if a policy of paying less for home workers were introduced, the original contract would have to be amended, new terms negotiated and agreed, and either a new contract, or variation via a side letter, signed. Any changes to the contract must be agreed by both the employer and employee or worker. Currently, where an employer has the contractual right to require an employee to work in the office, agreement to amending the place of work and pay clause may be easy to reach agreement on. If not, unilateral imposition of the change would carry other legal risks such as claims of breach of contract, unlawful deduction from wages or constructive dismissal.

Other Associated Risks

Commercial

Many argue that the main reason employers are not reducing benefits or pay for employees who work from home is that the competition for talent remains intense in today's candidate-led market. Making such reductions may mean companies are unable to attract the top-tier talent or even could push existing talent out with employees reportedly quitting when such practices are implemented (for example, at Google and Apple).

Relational 

Some employers are concerned about the dynamics of a two-tier workforce and how this might impact office and team dynamics. This change is also likely to have a negative impact on employee engagement because this policy could be seen as giving individuals an ultimatum when it comes to flexible working which may breed mistrust and discontent. Also, if remote employees are paid less than their equal level office counterparts, they may respond simply by not working as hard. 

Reputational

Finally, such measures may seem drastic to the outside world, particularly where blanket policies are put in place with no flexibility. Even in the case of the London law firm where employees are given a choice, there has been backlash from employees, the media, the general public and other companies. This may also make it difficult to attract new talent, which are all considerations that need to be carefully considered prior to implementing such a change.