Pay cuts and reduced hours: What can you ask employees to do during coronavirus, and what happens if they start working for a competitor in the meantime?

difference between a small business and a startup

Many employers have had to make tough decisions to ensure they can continue to operate despite restrictions imposed due to the COVID-19 pandemic, and any direct hit to their cashflow.

For big employers that had no choice but to dramatically reduce their offering — such as airlines, retail chains or large hospitality operators — the only realistic option was to stand down large numbers of staff. The biggest issue for most employers is staff costs, and if these people are not turning up every day and carrying out their duties, it makes sense to temporarily lower these costs

But for many small business owners, who have built a loyal, valuable team over the years, letting good talent go is often the last resort. Instead, many are looking at alternative ways to keep as many staff for as long as possible, while not causing irreparable financial damage to their business. 

A common tactic is to have implemented pay reductions — whether alongside reduced hours or not. Morally, it’s recommended that any introduced pay reductions do go hand in hand with a cut to hours, as it may be hard to justify the necessity of this action otherwise. This may be preferable to having to make redundancies, and if introduced across the board, demonstrates that, as is the popular line, ’we are all in this together’.

Employees do not have to agree to a pay cut, and if they do not, and it is enforced, the employer may be in a precarious place legally. A new contract must be drawn up and signed by both parties, and the employee has to agree to the cut. If they do not agree, it cannot be legally enforced. 

When employees need to look elsewhere

If you’ve introduced pay cuts with or without reduced hours, but did not qualify for the government’s JobKeeper scheme, or are only introducing these changes as the benefits come to a close, it is important to understand that staff may need to look elsewhere to top up their salary. Many office-based staff may have skills that can be used elsewhere, whether it’s in a similar industry or offering their services via an online marketplace such as Airtasker or Fiverr. 

But what if they go to a competitor? Where does that leave you legally? It’s advisable to take this into account while drawing up a new contract. If you have introduced pay cuts and a member of your team needs to make up the shortfall by pursuing new work opportunities, it could be seen as a pretty immoral stance to enforce rules that prohibit them from doing so.

Depending on the sector in which you specialise, it’s likely the original employment contract had a clause in about not accepting work from any organisation that could be deemed a competitor. But when introducing new working conditions, an entirely new contract must be drawn up. It is important to seek legal advice to ensure you’re meeting your obligations. There has been a 70% increase in unfair dismissal cases being received by the Fair Work Commission since the pandemic, and avoiding this process is recommended where possible.

My advice is to use common sense. An employer has a legitimate right to protect their business, and an employee has the right to make a living. It is a matter of balancing these common law principles.

If you treat your team well, maintain regular communication and demonstrate trust, it’s likely you will receive loyalty in return. If you find out a member of the team has been accepting work from a competitor, before taking action, arrange a meeting with them to chat about it. Having an adult conversation about their motivations and your future plans will help both sides to understand where they sit.

Legally, it all comes down to the new contract that has been drawn up, but as an employer who has taken a hit to their business, yet still wants to do the right thing, it might be in your best interests to be flexible. It’s also crucial to keep communication lines open and regularly update the team on timelines regarding pay returning to pre-pandemic levels. If a team member feels in the dark about their future, you risk speculation, gossip, and reduced morale — which is hard to recover from.

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