BA shares fly higher with ‘pay cuts’

British Airways saw its shares rise by 5.3 pence to 131.8 pence after announcing that 7,000 of its airline staff have agreed to accept voluntary pay cuts. The company hopes that this move, which includes 800 staff who will forego their salary entitlement for one month – effectively working for free. Thousands of members of the beleaguered airline’s staff volunteered to take unpaid leave or work part-time by late June 2009. BA hopes to save £10m and forestall any action that would lead to redundancies. The company reported an annual loss of £375m, caused by higher fuel costs and the slump in demand created by the recession. In spite of this initiative, the losses led to 2,500 job cuts.

Although chief executive Willie Walsh and other senior executives within the company are taking part by foregoing a month of their own salary, and in spite of thanks given by Walsh himself, not everyone is so pleased by the initiative. Some members of the cabin crew were furious. Unions like Unite aren’t so happy about the deal too, which will see members of staff on around £11,000 per annum having to go without any means to pay their bills. In stark contrast Walsh earns £740,000 a year, and therefore a £61,000 pay cut isn’t going to hurt his wallet too much.

The airline’s pilots have nevertheless been urged by their own union, Balpa, to accept shares in the company in return for the pay cuts. To accept these shares could be risky, particularly the firm’s shares tumbled at one point when Virgin Airlines boss, Sir Richard Branson, suggested that BA was no longer worth anything. Pilots will also be required to increase their working hours, which will spark health and safety concerns. If any fatal or injurious accidents were ever to be caused by this, BA could be prosecuted under legislation, ranging from legislation such as the Health and Safety Offences Act 2008 and perhaps even the 2007 Corporate Manslaughter and Corporate Homicide Act.

There is also no guarantee that jobs can actually be saved. Walsh recently predicted at a conference in Paris, according to the Financial Times, that “the worst of this recession is still ahead of us.” Therefore the pay cuts can’t promise BA’s survival, nor will they necessarily prevent any need for further compulsory or voluntary redundancies from happening.
Curt Finch, CEO of ‘time-tracking’ software company Journyx, believes that the “natural result of this strategy is that you will lose your most talented people and all of the losers will stay.” He suggests that an across the board eight percent pay cut would be more successful, “but perhaps the unions make that impossible.” Citing Warren Buffet, he says, “The airline industry as a whole has never made money in a single year since the Wright brothers invented powered flight: when have they not been whining?”

Anyway, what is the legal position? Can BA and other companies really expect staff to work for no pay? There is nothing to stop them in law, providing their staff members agree to the offer and are not forced to accept it. The UK government seems to accept that drastic times lead to radical measures. “It is for businesses, employees and their representative to decide how they respond to the current economic climate”, says Department for Business, Innovation and Skills spokesman Alex Hamilton. He warns that employers should nevertheless comply with current employment legislation, including the National Minimum Wage.

To force an employee to work without pay would be unlawful, according to Jacqui McGuigan of TMP Solicitors. Employment contracts don’t usually have a clause that allows an employer to reduce the pay of that particular member of staff involved in the agreement. To force someone to take a pay cut would not only be bad for employee-employer relations, but it could also lead to a rise to a claim under the Employment Rights Act 1996. Such an unlawful action would also be a breach of contract. So with the consent of its employees, British Airways is fully entitled to lay off staff on a temporary basis or “offer short-time working as a means to avoid making staff redundant and saving costs”, she explains.

Consideration should also be given to the Working Time Regulations, and the Information and Consultation of Employees Regulations. Companies need to ensure that they comply with any existing laws, consult and gain the consent of their employees and their representative to avoid what could otherwise create a situation where costly legal action is begun against them.

“To impose a pay cut would leave an employer open to an employee bringing a case of unfair dismissal”, says David Morrison – a partner of The Khan Partnership. The law is on the side of the employees, but they would most probably have to resign to bring a claim to a tribunal. They could then claim for “constructive dismissal within a reasonable period”, he explains. However, this would mean having to find a new job and that’s not an option for many people during this recession. So in many cases, most people wouldn’t have much of a choice when faced with an offer of a pay cut or redundancy. Most employees of any company facing the same situation as BA’s staff will elect to keep their jobs – no matter what it takes.