Pay Cuts and Unfair Dismissal

09 Aug 2011

The recent decision of the Employment Appeals Tribunal (EAT) in Garside and Laycock Ltd v Booth serves to remind employers of what will be construed to be reasonable when dismissing employees who refuse to accept pay cuts. 

Garside and Laycock, a construction company based in North East England, needed to cut costs and increase profits. In an attempt to avoid redundancies, they asked 77 employees to accept a 5% pay cut. All but one of the employees, Mr Booth, accepted the pay cut and signed up to new terms and conditions. 

 

Mr Booth refused and was dismissed on the grounds of “Some Other Substantial Reason”.  He brought a claim against his employer, in which the Employment Tribunal held the dismissal to be unfair.  The employer appealed to the EAT on the grounds that the reason for the dismissal was fair and that they had followed a fair and reasonable process when dismissing Mr Booth.

 

The EAT upheld the employer’s appeal, stating that the Tribunal had gone wrong in two areas:

– the Tribunal incorrectly considered whether or not it was reasonabe for the employee to accept the pay cut.  The test that the Tribunal should have followed was whether the employer acted reasonably in dismissing the employee; and

– it was incorrect to apply the test that an employer may only offer less favourable terms if the very survival of the business depended on it.  The reasoning does not have to be as definitive as that; businesses may have to make cost cutting decisions even if they are in good shape.

   

The EAT held that, as well as looking at the usual factors of reasonableness (including the size and administrative resources of the employer), the Tribunal should also consider whether the dismissal “was in accordance with equity”.  This means looking at the overall picture within the business and considering whether the employer acted reasonably.  The Tribunal should look into the reasoning behind the pay cuts and consider whether the decision was fair.  The Tribunal indicated that if a pay cut is imposed across the workforce but it excludes managers, then there is potential for a “Some Other Substantial Reason” dismissal to be unfair.

 

Dismissing employees who refuse to accept pay cuts is a hot topic.  This case reinforces the fact that such a dismissal can be fair but it is essential that the employer is reasonable in making its decision and follows a fair procedure.