What Does a Salary Reduction Imply?

Anna Bayda
LL.M., Associate
Beiten Burkhardt

The issue of reducing employees’ salaries has been arising quite often during the crisis. Furthermore, in most cases, employers frequently do not expect that there are associated issues to be resolved as well.

Salary rate is an essential condition of an employment agreement and is determined by mutual agreement between the employee and the employer. Therefore, salary may be changed only upon the parties agreement to the employment agreement, with the exception of cases stipulated by the Labor Code, such as the employer unilaterally changing terms and conditions of an employment agreement because of reasons related to a change in organizational or technological working conditions.

On the basis of either of the abovementioned variants, an employees salary may be reduced either under an additional agreement to the employment agreement or because of the impossibility of maintaining the former terms and conditions of the employment agreement on account of a change in organizational or technological working conditions.

Pursuant to the Labor Code, “the salary of each employee depends on his/her qualifications, the complexity of the work performed, the quantity and quality of the labor input.”

Therefore, when changing the salary rate, employees working conditions such as the working hours and the volume of work performed — meaning both duties and intensity of the work performed should also be taken into account. Otherwise there is a risk of the parties agreement being contested by the employee on the grounds that he/she was forced to sign it, or a risk of contestation of the procedure carried out for changing the terms and conditions of the employment agreement on account of a change in organizational or technological working conditions.

In the event that the working hours and the volume of work performed remain the same, or even increase, but the salary is reduced, in some instances the employee may demand that the employer pay him/her the difference between the reduced and the former salary.

Furthermore, when reducing salary, employers should also remember the obligation of employers stipulated by labor laws to ensure equal payment to employees for labor of equal value.

In practice this also means that the size of an employees salary should correspond to his/her qualifications, which in turn should correspond to the particular position. Consequently employees occupying the same position and having the same qualifications should have equal salaries, and employees with different qualifications should occupy different positions.

Therefore, an employer may not reduce an employees salary without reducing the salary of other employees who occupy the same position.

But under Russian law, employees occupying the same position and hence having the same qualifications may have different working hours, resulting in a reduction of the salary pro rata to such reduced working hours. In other respects, employees working part-time have the same labor rights as persons working full-time.

Therefore, in most cases, a salary rate reduction implies a respective reduction in working hours and the volume of work performed, whether duties or intensity of the work performed. A change in the provisions on salary, working hours and duties of an employee should be formalized by an additional agreement to the employment agreement between the employer and the employee.