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Could You Dismiss an Employee for Refusing a Pay Cut?

31st August, 2011

In the current economic climate, employers continue to seek ways of cutting costs. The Employment Appeal Tribunal has recently delivered a relevant judgement in Garside & Laycock v Booth UKEAT/0003/11/CEA.

In this case, 78 employees had been asked by their employer, Garside & Laycock, to accept a pay reduction of 5% as a result of financial difficulties. However, one employee, Mr Booth, refused to agree to the reduction. He had been employed for seven years and was ultimately dismissed for his refusal. Mr Booth issued proceedings for unfair dismissal and the employment tribunal accordingly held this dismissal to be unfair.

However this decision was appealed and the Employment Appeal Tribunal held that the tribunal had made errors in their judgement. The tribunal was held to be incorrect to have determined that the relevant test was that an employer may only offer less favourable terms if the very survival of the business depended on it. It was also incorrect to assess the reasonableness of the employer’s decision by asking what was reasonable for the employer to do in the circumstances.

The EAT held that the correct test was whether the employer, having established “some other substantial reason”, had acted reasonably.

This case reminds employers that it is necessary to have a fair reason dismiss an employee. It may be possible to establish “some other substantial reason” in these circumstances.

In this situation, employers would be advised to firstly look at reducing costs through different measures. Proposing a pay cut to employees should be (and should be seen as) a last resort to avoid compulsory redundancies and an unfavourable decision in the event of a Tribunal claim.

With the summer 2011 report of the CIPD, Employee Outlook: Focus on Pay and Pensions, showing that pay levels have fallen below the current cost of living, this issue may continue to be of relevance to employers faced with the need to cut costs. For further advice on any of the issues raised in this article, please do not hesitate to contact Claire Brook, Partner, Employment Team at [email protected]

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