Dismissal for Refusing to Accept Pay Cut

In the current economic climate many employers have been forced to look at imposing a pay cut on their employees as a means of weathering hard times. Such a policy can have its attractions for both employers and employees. From the employer’s point of view, in addition to the immediate benefit of a cut in wage costs, there is the added benefit that the skills of valued employees are retained and the costs of recruiting and training new staff once the upturn comes - which must surely happen at some point! - are avoided. So far as the employees are concerned, redundancies may be avoided at a time of high unemployment.

In a decision broadly helpful to employers, the Employment Appeal Tribunal (EAT) has confirmed that it may be fair to dismiss an employee who refuses to accept a pay cut. In Garside and Laycock Ltd. v Booth, in 2009 GL, faced with a drop in its sales and profits, asked its employees to take a pay cut of 5%. After a series of company-wide meetings with employees, a ballot was held. 77 employees voted in favour, 7 abstained and 4 voted against. B was one of two employees who ultimately refused to accept the pay cut – even though that GL offered to review his pay after six months and met with him three times in an attempt to get him to reconsider his position. When, eventually, he was dismissed he sued for unfair dismissal. He won in the Employment Tribunal on the basis that it was reasonable for B to seek to maintain his terms and conditions. GL appealed.

The EAT upheld GL’s appeal, ruling that the Employment Tribunal had gone wrong in two respects. Firstly, it had wrongly focused on the reasonableness of B's decision to reject the pay cut, rather than on the reasonableness of GL's decision to dismiss B for not accepting it. Secondly, the Employment Tribunal had been wrong in thinking that, for a dismissal for refusing to accept a pay cut to be fair, an employer had to show that the situation had been so desperate that the imposition of the pay cut had been the only way of saving the business. In other words, the Employment Tribunal had placed the bar too high. The EAT sent the case to a different Employment Tribunal to consider the case afresh, applying the correct principles.
In its judgment, the EAT gave some general guidance on the correct approach for tribunals to take when dealing with such dismissals. In deciding whether the decision to dismiss was reasonable, the tribunal must consider whether, in the circumstances (including the size and resources of the employer's undertaking) it was reasonable for the employer to treat the employee’s refusal to agree to a contractual variation as a reason to dismiss. However, the dismissal must also be “in accordance with equity”. Interestingly, t#he EAT considered that this may have particular force where, for example, management proposes a cut to employees' pay, but not to its own. Similarly, the process by which the pay cut was negotiated may be relevant where a tribunal considers whether the employer has acted unfairly.

If you would like to know more, please contact Nick Crook or Gareth Pobjoy.

Filed: 11/08/2011 09:29:43