On 1 April 2016, the national living wage was introduced. For workers aged 25 or over, the minimum wage that must be paid is £7.20 per hour.
The introduction of the new national living wage was heralded as a good thing for workers and a positive move by the Government. However, quite quickly, there had been reports that employers have tried to erode the benefit or offset the additional cost by removing or changing certain benefits. We have had reports of retailers removing benefits such as free lunches. Other employers have reportedly changed (or are planning to change) premium rates for working overtime and/or working on Sundays.
In essence, employers are being forced by the Government to give on the one hand and are choosing themselves to take away on the other. This has been widely reported in the media as an unexpected consequence of the new national living wage. However, there has been little focus (so far) on whether employers can actually do this?
Let’s start by going back to basics with the law on contract. Employees have a number of benefits that are or can become contractual rights. The right to benefit from employment benefits can be derived from a number of sources:
However, it is an angle which would need to be looked at. Terms can be also incorporated into an individual contract of employment if they are set out in other documents, such as a staff handbook, and they are apt for incorporation.
The reason the above is relevant is because, where a right is or has become a contractual benefit, an employee has a significant amount of protection. An employer withdrawing the contractual right might be acting in breach of contract.
It is worth exploring at this stage how an employer can change a contract, if the employer wishes to withdraw a contractual right. This can happen in a number of ways including as follows:
The media stories have all been about employers having withdrawn benefits or planning to withdraw benefits. I have not seen anything yet about employees reacting to this and standing up to their employers. If we take the example of free food provided to employees at lunch times, this may well have become a contractual right. An employer might have previously promised employees the right to a free sandwich and/or a cup of coffee at lunch times or it might have been incorporated by custom and practice. Either way, once it has become a contractual right then it cannot simply be withdrawn.
The issue of premium rates for Sundays or premium overtime rates can be interesting. Unlike benefits such as free meals (which might not be written down) what someone will be paid for working certain days or hours will almost certainly be written down. An employee will know what he or she is going to be paid for working on a given day and will know what the overtime rates are. The wording setting out the pay rates will be important and there might be a specific power to vary. However, absent a specific power to vary, a variation in pay rates would be a fundamental breach of contract.
Admittedly, it is easy for me to say there might be a claim here but not so easy for an employee earning the national living wage to sue one of the retail giants. However, a number of these retailers will have employees who are members of trade unions and I would expect the trade unions to stand up for their members. Other employees could club together to apply some pressure to the employer.
In summary, there is more to this story than meets the eye. The media reports are suggesting that employers might be acting unreasonably or contrary to the spirit of the legislation by withdrawing certain benefits or changing pay rates. However, it goes further than this and employers might be acting unlawfully if they make certain changes as a reaction to the introduction of the national living wage. Employers cannot simply make contractual changes because the new wage rate is being forced on them and they don’t like it.
For employees, you need to consider the position carefully and if you can take specialist advice then you should do this. For employers, I do not recommend that you take any steps without first considering the contractual issues and having a well planned strategy for making the change, worked out in conjunction with your specialist employment law advisors. Consultation should be undertaken and will in some cases be compulsory. Good employers will talk to their employees and explain clearly why they are making changes, even where the employer has the power to make the changes or where it is unlikely the benefit is contractual.
For more information or to discuss any issues regarding the national living wage and the withdrawal of benefits please contact me.