Advokat Anne Cathrine Hunstad, leder av Juridisk kontor i Tekna
Anne Cathrine Hunstad, Director of Tekna's legal department

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Everything you need to know about salary cuts

Written by Tekna’s legal department Mar. 31 2021

Does an employer have the right to reduce employees’ salaries for financial reasons? Tekna’s attorneys have taken a closer look at this issue.

- Some employers claim that it’s within their mandate to reduce employees’ salaries if doing so is necessary for financial reasons – without having any agreement in place with individual employees. We disagree strongly with this claim, says Anne Cathrine Hunstad, Director of Tekna’s legal department.

Here’s everything you need to know about salary cuts and your rights:

Contract required

A contract must be signed with each individual employee.

Your employment contract is a mutually binding agreement, and your salary is one of the elements included in this contract. It’s based on the fact that an agreement must be reached – and a revised contract between you and your employer drawn up – in order for you to have your salary cut. This also means that your company union representatives can’t sign a contract with your employer to reduce your salary, either. 

Must be discussed

Under what conditions can union representatives enter into an agreement?

If an employer wants to cut salaries, this must be discussed with the union representatives in advance, assuming that there are local Tekna representatives working in the organization. 

We recommend that the union representatives who are going to discuss this action challenge their employer to find out what other actions have been evaluated and if thorough calculations have been made on the effect this action will have on employees. The representatives must also make sure to clarify that as representatives, they can’t commit to getting members to agree with the employer, thereby ensuring that whatever they say doesn’t mean that they’re agreeing to any deal on behalf of individual employees.

Always temporary

What advice do we give you about the content in this agreement?

Any agreement on salary cuts should always be a temporary one. An employee shouldn’t accept an agreement that involves a permanent salary reduction. You can also draw up an agreement stating that any salary cut will be compensated for later if financial conditions allow it.

Alternatives

What if you refuse to sign a contract to have your salary cut?

If you don’t go along with an agreement about having your salary cut, your employer must respect your current salary conditions. One alternative is that your employer terminates your employment contract, offering you instead a new agreement based on less advantageous terms. This kind of termination must be based on valid reasons. If you are actually terminated for valid reasons because you refuse to accept a salary cut, this must be specifically evaluated. Tekna’s legal department can look more closely at your case if you end up in this type of situation. No matter what happens, your employer must respect the terms of your current contract during the entire notice period.

What if I’ve gotten a new job?

If you’ve gotten a new job, it can pay off to refuse a voluntary salary cut as it ensures your employer paying your full salary during the notice period.

Consequences

Consequences of a salary cut agreement

If your employer is having financial difficulties to the extent that declaring bankruptcy is a realistic possibility, you should also remember that any salary cut agreement will have consequences – including for the salary you might be paid from a bankruptcy estate. If you enter into an agreement to receive a salary reduction for six months, and your employer goes bankrupt after two months, both the salary you’re paid up to the time bankruptcy proceedings start and the salary you’re paid during the notice period from the bankruptcy estate (or in practice the government’s wage guarantee plan) are calculated based on the reduced salary you had agreed to during this period.

A salary reduction also naturally has consequences for accrual of your pension and vacation pay because the basis for calculating these has become comparatively lower. This might apply to sickness benefits and unemployment benefits as well.

Contact Tekna’s legal department

Contact us if you need help!

We encourage you – union representatives and members alike – to contact Tekna’s legal department if you’re asked to sign this kind of contract. Our department has a hotline that’s open every weekday. Please call (47) 22 94 75 00 or send an e-mail to juridisk@tekna.no

Keywords: lønnskutt, rettigheter

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