When can an employer reduce wages?

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Where an employer breaches an employment contract by unilaterally reducing an employee’s remuneration when the contract requires the consent of both, the employee may sue to recover damages for breach of contract even though he or she has elected to continue on in employment.
“It may be accepted that the CEPU repudiated Mr Harpham’s contract of employment when it substantially reduced his remuneration package in 2009: see Cantor Fitzgerald International v Callaghan [1999] 2 All ER 411 at 420–1. Moreover, after 1 July 2009, the CEPU breached Mr Harpham’s employment contract by paying him less than the sum that had been contractually agreed in September 2008.
The CEPU, dealing evidently with the eventuality that its breach was repudiatory, submitted that Mr Harpham “elected to continue in employment”. I would accept that submission. At the point of repudiatory breach, Mr Harpham could have elected to terminate the contract: see Romero v Farstad Shipping (Indian Pacific) Pty Ltd (2014) 231 FCR 403 at 435–6. He did not, however, do so. He chose to remain in his position as an organiser for over three years. During this period further variations to his remuneration occurred and were not objected to by him. While an immediate decision was not required on 1 July 2009 (cf Rigby v Ferodo Ltd [1988] ICR 29) his protracted on-going employment was consistent only with his having elected to affirm the contract: cf Sargent v ASL Developments Limited(1974) 131 CLR 634 at 656; Khoury v Government Insurance Office of New South Wales (1984) 165 CLR 622 at 633; and Galafassi v Kelly (2014) 87 NSWLR 119 at [88].
An election to affirm the contract does not, however, affect Mr Harpham’s right to contractual damages for breach. Nor does the fact that he continued in his employment for at least a time (and I will return to this) gainsay the proposition that the CEPU was in breach of its contractual obligations. The CEPU did not submit that Mr Harpham was estopped from insisting upon the relevant contractual entitlement. Nor did it submit or plead that any provision of the Limitation Act 1974 (Tas) precluded Mr Harpham’s action. On its face it was brought within the relevant period: see s 4. Accordingly, the position seems to me to be similar, if not identical, to that considered in Rigby v Ferodo Ltd[1988] ICR 29, the result in which is accurately captured in the headnote to the report as follows:
“[I]n the absence of the employer seeking to terminate the contract of service it had with the employee, the employer had sought to compel the employee to accept a wage that was less than he was entitled to under the contract; that the employee in continuing to work and receiving a reduced payment under protest had not accepted a variation in the terms of the contract and, therefore, he was entitled to recover the difference between his contractual entitlement and the amount paid by the employer either in damages for breach of the contract or in debt).”
Harpham v Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia [2016] FCA 1473 delivered on 8 December 2016 per Tracey J