UNFAIR DISMISSAL - 09.09.2011

Refused a 5% pay cut - is that grounds for dismissal?

Pay cut or redundancies?

Over the past few years, many employers have managed to avoid, or at least reduce, their need to make redundancies by asking staff to take pay cuts, usually in the region of 5-10%. But what happens if the majority agree that this is the best option overall, yet one or two don’t? Would you have solid grounds to dismiss the dissenters?

Rejected a 5% pay cut

These questions were considered recently in Garside and Laycock Ltd v Booth 2011. Back in 2009, Garside (G) was experiencing trading problems. It identified that a 5% wage cut across the board might avoid redundancies. After holding meetings with its 77 staff, all but one - Booth (B) - agreed to the proposal. As a consequence, G terminated his employment for “some other substantial reason” (SOSR) (see The next step).

At the same time, it also offered B alternative employment under the new terms and conditions, i.e. the same role at 5% less pay. He refused and launched a claim for unfair dismissal.

Claim dismissed

The tribunal ruled that B’s dismissal was unfair. This was because, although it was for SOSR, G had failed to show that it was “fair in all the circumstances”. In other words, its business wouldn’t necessarily fail if the wage cuts weren’t implemented. Furthermore, it held that it was not unreasonable for B to want to maintain his existing terms and conditions of employment. Unsurprisingly, G appealed to the Employment Appeal Tribunal (EAT).

Tribunal got it wrong

On hearing the appeal, the EAT concluded that the tribunal had adopted the wrong approach at the original hearing - rather than focusing on whether B’s refusal to accept a pay cut was reasonable, it should have concentrated its mind on what was a reasonable response for G under the circumstances. It also stated that the tribunal should have considered whether the dismissal decision wasmade “in accordance with equity”.

Were they all treated equally?

This involves looking at whether there were any other cost savings that could be made first and who else took a pay cut, e.g. managers. Luckily, G had reduced all other costs where possible and applied the 5% wage reduction to its workforce as a whole. Had it not done so, it’s likely that the EAT would have upheld the tribunal’s earlier ruling. The case will now go back to another tribunal, which will apply the correct test to B’s dismissal.

Tip. In the meantime, there are two important lessons we can learn from this ruling. Firstly, a clear consultation process withstaff over proposed pay cuts is vital - G’s position was strengthened by the fact it had gone out of its way to brief staff on why they were necessary and find alternative solutions. Secondly, it hadn’t imposed this cost cutting exercise at a lower level only - senior managers were asked to make the same sacrifice too. Therefore, it had taken an even-handed approach to the exercise.

For further information on SOSR dismissals, visit http://personnel.indicator.co.uk (PS 13.16.04).