A Case on Dismissal for Refusing a Pay Cut

Frequently, especially in current economic conditions, Employers will want to know if they can cut costs by reducing the wages of its staff.  There is no hard and fast answer but a recent Employment Appeal Tribunal (EAT) decision in Garside and Laycock Limited –v- Booth gave some guidance for Employers in this situation.

Here Garside and Laycock Limited sought to avoid redundancies by cutting its work force’s salary by 5%.  Booth refused to accept the pay cut, and was dismissed as a result.  He claimed unfair dismissal, which the Employment Tribunal initially upheld upon the basis that it was reasonable for him to maintain his pay and conditions.  His employers appealed.

The EAT held that the Tribunal at first instance had erred in law.  Firstly it had wrongly considered the reasonableness of the Employee’s decision to reject the pay cut rather than whether the Employer was reasonable to dismiss the Employee for not accepting it.  Secondly the Tribunal had wrongly considered whether or not a dismissal for refusing a pay cut was fair depended upon whether or not the Employer was so desperate that the only way of salvaging the business was to propose cuts in pay and conditions.

The EAT sent the case back to the Tribunal for a fresh hearing, but gave guidance on the correct approach.  It said that the Tribunal must look at the circumstances (including the size and resources of the Employer) to see if it was reasonable to treat the refusal to agree a contractual variation as sufficient to dismiss the Employee.  At the same time the Tribunal should consider whether the dismissal was made in “accordance with equity”.  The EAT felt that this may be relevant if a management proposed to cut its own workers’ pay but not its own.  Similarly the process by which a pay cut was negotiated may be relevant where a Tribunal considers that it runs contrary to equity’s sense of fair dealing.

Daven Naghen, head of the Employment Team, commented as follows:-

“Dismissing an employee for refusing a pay cut or contractual variation is often a tricky issue.  If an employer is going to do this fairly, then it must be reasonable in the circumstances to treat the refusal of the employee as sufficient to dismiss.  If for example a pay cut is proposed, the management have agreed to take a pay cut, the pay cut is necessary in order to keep the business afloat and the staff were involved in a consultation process – then there is a reasonable chance that a dismissal of an employee in these circumstances for refusing the pay cut may be fair.  Each case will depend upon its own circumstances and no employer should ever dismiss an employee for refusal to accept a contractual variation without first seeking legal advice.”

If you require advice on this matter then please contact either Daven Naghen on 01775 722261, daven.naghen@maplessolicitors.com or at 23 New Road, Spalding, Lincolnshire PE11 1DH or Gemma Mayer on 01775 722261, gemma.mayer@maplessolicitors.com or at 23 New Road, Spalding, Lincolnshire PE11 1DH.