Appeal Tribunal gives guidance on pay cuts and dismissal
Discussion
The topic of unilateral changes to pay and conditions comes up quite often here; and managers, HR dudes and employment lawyers may be interested in recent guidance from the Employment Appeal Tribunal on dismissal following a refusal to accept a pay reduction.
In Garside and Laycock Ltd v Booth the EAT has held that an employment tribunal misdirected itself in finding that it was unfair to dismiss an employee who refused to accept a pay cut. In remitting the case to a fresh tribunal, the EAT stressed that in addition to considering whether, in the circumstances (including the size and administrative resources of the employer's undertaking) the employer acted reasonably or unreasonably in treating the refusal to accept a pay cut as a sufficient reason for dismissing the employee, a tribunal should also consider whether the dismissal 'was in accordance with equity'. This may involve a consideration of matters such as whether management have also been subjected to a pay cut.
GL Ltd decided that, in order to avoid redundancies, it needed to cut its workforce's salary by five per cent. B refused to agree to a variation of his contractual terms relating to pay, and was dismissed for that refusal. He brought a claim of unfair dismissal which was upheld by an employment tribunal on the basis that it was reasonable for B to seek to maintain his terms and conditions. GL Ltd appealed.
The EAT held that the tribunal 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 ratio of the EAT's 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 the circumstances in S.98(4)(a) Employment Rights Act 1996 - i.e. 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 that S.98(4)(b) also requires the tribunal 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.
In Garside and Laycock Ltd v Booth the EAT has held that an employment tribunal misdirected itself in finding that it was unfair to dismiss an employee who refused to accept a pay cut. In remitting the case to a fresh tribunal, the EAT stressed that in addition to considering whether, in the circumstances (including the size and administrative resources of the employer's undertaking) the employer acted reasonably or unreasonably in treating the refusal to accept a pay cut as a sufficient reason for dismissing the employee, a tribunal should also consider whether the dismissal 'was in accordance with equity'. This may involve a consideration of matters such as whether management have also been subjected to a pay cut.
GL Ltd decided that, in order to avoid redundancies, it needed to cut its workforce's salary by five per cent. B refused to agree to a variation of his contractual terms relating to pay, and was dismissed for that refusal. He brought a claim of unfair dismissal which was upheld by an employment tribunal on the basis that it was reasonable for B to seek to maintain his terms and conditions. GL Ltd appealed.
The EAT held that the tribunal 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 ratio of the EAT's 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 the circumstances in S.98(4)(a) Employment Rights Act 1996 - i.e. 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 that S.98(4)(b) also requires the tribunal 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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