We have recently been instructed to assist a client who was, unfortunately, quite suddenly dismissed after he refused to accept a pay cut. Although surprising, it is possible for employers to dismiss employees if they refuse to accept a pay cut however, such dismissals will often be subjected the scrutiny of Employment Tribunals if the process and the rationale behind the employer’s decision to dismiss is not fair.
This issue was looked at in the case of Garside and Laycock v Booth[1] in which, instead of making redundancies, the employer consulted with employees and then subsequently attempted to impose a 5% pay cut across the board.
Only one employee refused to accept the pay cut and when he was subsequently sacked he took his employer to an Employment Tribunal, arguing that their decision to dismiss him (on the basis that when they dismissed him “for some other substantial reason” or SOSR) was done unfairly.
The Tribunal at first instance ruled in his favour on the basis that it was reasonable for him to expect his employer to maintain his contractual terms and conditions.
Upon appeal, the Employment Appeal Tribunal were critical of the original Tribunal’s decision and sent the case back to be re-heard.
The EAT gave some guidance as to how the Tribunal should have approached the case. In particular they suggested that in order to assess the reasonableness of the dismissal, the Tribunal must in particular look at whether or not, taking into account the size and resources of the employer, it was reasonable to treat an employee’s refusal to accept a pay cut as a sufficient reason to terminate the employment contract.
The Employment Tribunal also gave guidance that all such decisions must be determined “in accordance with equity”. This meant that the Tribunal must be satisfied that the employer was treating its employees fairly when it imposed the pay cut.
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One factor which the Employment Tribunal may want to consider is whether or not the imposition of a pay cut has been targeted on one employee or whether or not all employees were having a pay cut imposed, including members of management. The process which the employer adopted when consulting with employees with regard to the pay cut would also have to be scrutinised for fairness.
In summary, it is possible to fairly sack an employee if they refuse a pay cut, but the imposition of the pay cut must be absolutely essential, possibly involving the future survival of the business and must also be imposed fairly and following a reasonable consultation.
This goes against many peoples’ instincts which suggest that once an employee and employer have entered into a binding contract which sets out pay and conditions, it should not be easy for an employer to simply go back on that. In reality, employers are often faced with difficult financial decisions and, as long as they treat their employees fairly and reasonably and consult with them properly, it may be fair for an employer to occasionally impose pay cuts, especially if the survival of the business is at stake.