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Frettens Update: Dismissal for refusing pay cut

  25th August 2011      
 Company News

 

The Employment Appeals Tribunal (“EAT”) has decided in Garside & Laycock v Booth, that the question whether a dismissal is fair for “some other substantial reason”, where the dismissal is for failure to accept wage-cutting proposals, is whether it was reasonable for the employer to dismiss, rather than asking whether it was reasonable for the employee to accept the lesser terms offered to him.

The employer decided that, in order to avoid redundancies, it needed to cut its workforce’s salary by 5%. Mr Booth refused to agree to a variation of his contractual terms relating to pay, and was dismissed for that refusal from a job he had held for the previous seven years. Out of 77 employees he was the only one, by the time of dismissal, who held out against the change. He brought a claim of unfair dismissal which was upheld by an employment tribunal on the basis that it was reasonable for him to seek to maintain his terms and conditions. The employer appealed the decision.

The EAT held that the tribunal had erred in two important respects. 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 have dismissed B for not accepting the reduction. Secondly, the tribunal had completely misunderstood the EAT’s earlier decision in Catamaran Cruisers Ltd v Williams and ors: that case had rejected, not supported, the argument that whether a dismissal for refusing a pay cut is fair will depend on whether the employer was in a situation so desperate that the only way of saving the business was to propose stringent reductions in pay and conditions.

Having held that the case would be remitted to a fresh tribunal, the EAT gave guidance on the correct approach for tribunals to take when dealing with such dismissals. In assessing reasonableness, a tribunal must look at whether, in the circumstances (including the size and resources of the employer’s undertaking), it was reasonable to treat the refusal to agree to a contractual variation as sufficient to dismiss the employee.

It should not, however, be overlooked that the tribunal is also required to consider whether the dismissal was ‘in accordance with equity’. The EAT considered that this may have particular force where, for example, management proposes a cut to workers’ pay, but not to its own. Similarly, the process by which the pay cut was negotiated may be relevant where a tribunal considers that it runs counter to equity’s implied sense of fair dealing.

 

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