Fair dismissal for refusing pay cut

An employment appeal tribunal has ruled that it was fair for an employer to dismiss an employee who refused to accept a 5% pay cut.  The remaining 76 workers accepted it and kept their jobs.

In the case of Garside & Laycock v Booth the employer requested a pay reduction of 5 per cent to avoid redundancies and increase profits, and the claimant was the only employee who refused to accept it and was dismissed.  Following his successful application to the ET for unfair dismissal, the employer appealed and the appeal was upheld.

For commercial reasons an employer may want to reduce employees’ pay or hours, on a temporary or permanent basis, and as an alternative, or in addition, to redundancies.  If the employees won’t accept a pay cut, and the employer has no power to impose it stated in their employments contracts, following a consultation process, dismissals may result.

They should be carried out by serving contractual notice, coupled with an offer of continued employment on the revised terms – this may encourage the employees to accept the pay cut, rather than losing their jobs and having to sue for unfair dismissal.  Should this happen, the employer would need to defend any unfair dismissal claims on the basis that dismissal was for “some other substantial reason”.

The EAT made clear that an employer does not have to show that the survival of the business depends on the proposed changes in order to defend subsequent unfair dismissal claims.  The test is whether it was reasonable for the employer to dismiss in all the circumstances, rather than whether it was reasonable for the employee to accept the proposed reduced terms.

The employer’s dismissal procedure will also determine whether a dismissal is fair.  This case makes it clear that careful consultation and consideration of individual circumstances, as well as the level of acceptance by the workforce of the proposed changes, may all affect the tribunal’s assessment of whether a particular dismissal is unfair.  The “equity and the substantial merits of the case” may also include consideration of where the cuts were made, for example, if management as well as workers were affected.