The employer may unilaterally reduce the employee’s salary under § 37 of the Employment Contracts Act (TLS), but only under certain conditions. The law provides the possibility to temporarily reduce the employee’s salary if the employer, due to objective economic reasons, is unable to provide the employee with the agreed amount of work. Salary reduction is an exceptional and extreme measure, and the statutory conditions must be simultaneously met to apply it:

1. The reduction in work volume that serves as the basis for the salary reduction must be unforeseeable, which may be the case in several different scenarios.
2. The usual payment of the salary must be unreasonably burdensome for the employer. For instance, salary cannot be reduced if the employer is unable to provide the agreed amount of work but has sufficient financial resources to pay the salary and there is no actual need to alter the employee's salary.

Before reducing the salary, the employer must first check if it is possible to offer the employee other work. If it turns out that no alternative work can be offered or if the employee refuses the alternative work, the employer must notify the employees’ representative or, if there is no representative, the employees directly about the intended salary reduction at least 14 calendar days in advance. This gives the employees an opportunity to voice their opinion. The employees must submit their opinion within seven calendar days of receiving the notification.

How should the employer notify employees about the planned salary reduction?

The employer may submit the salary reduction notice via email, but must ensure that the employee or the representative receives it (e.g., asking for confirmation of receipt). In case of a dispute, the employer must be able to prove when and how the notice was delivered to the employee or representative.

How long in advance must employees be notified about the salary reduction?

Section 4 of § 37 of the Employment Contracts Act stipulates that the employer must notify the employees’ representative or, if there is no representative, the employees directly about the planned salary reduction at least 14 calendar days in advance. The Employment Contracts Act does not provide exceptions allowing the employer to unilaterally reduce the salary immediately.

What happens if the employee disagrees with the salary reduction?

If the employee(s) do not agree with the salary reduction, they have the right to terminate the employment contract, giving the employer at least five workdays’ notice. Upon termination of the employment contract, in addition to the earned salary and any unused vacation pay, the employee will also receive compensation equal to one month's average salary.

For how long can the salary be reduced?

Temporary salary reduction is allowed for up to three months within a 12-month period. For example, if the salary reduction starts at the beginning of April this year, it can last for three months, up to the end of March the following year.

How much can the employer reduce the salary?

The salary can be reduced to no less than the minimum wage set by the Government of the Republic (584 euros per month or 3.48 euros per hour). The reduction proportion must correspond to the reduction in the amount of work offered to the employee. The employee's hourly wage cannot be reduced, but the number of hours worked can be reduced. As a result, the total pay for an employee working on an hourly basis will decrease.