Employee awarded over $10,000 after employer reduces employee's salary

The Employment Relations Authority has ordered an employer to pay $10,500 after the employer failed to follow proper process in addressing performance issues.

The parties had agreed that the employee would be paid a salary that was higher than similar level employees, and also agreed that the employee was not to disclose this to his colleagues.

The employer became concerned about the employee’s performance. Rather than raising the performance issues with the employee and taking steps to improve the employee’s performance, the employer reduced the employee’s salary by $10,000 with the reluctant agreement of the employee.

Despite agreeing not to, the employee disclosed his salary to a colleague.

The ERA found that while the employee agreed to the reduction in salary, the employer acted upon the performance concerns without following a fair process, which includes:

• raising the concerns with the employee;
• considering the employee’s explanation (if any);
• allowing the employee reasonable time to improve;
• making clear to the employee the consequences of failing to improve;
• providing the employee with any support reasonably necessary;
• reviewing the employee’s performance at the end of a reasonable time period; and
• if necessary, considering the employee’s explanation (if any) if there had not been an acceptable improvement.

The employer was ordered to reimburse the employee for the loss suffered by the reduction in salary and pay a further $10,000 in compensation.

This was an expensive outcome for the employer, who acted hastily. It could have been avoided if the employer had followed a proper process.

Ben Ruback

Employment Lawyer Wellington