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Dismissing an employee for refusing to take a pay cut

31st July 2011

In challenging times, when profits are reduced, employers may be faced with a stark choice of making staff redundant. Alternatively some employers prefer to try measures to retain as many of their staff as possible. Clearly this is a good step for a business to take, as it will have experienced staff ready to deal with an increase in demand and will avoid the cost and uncertainty of recruitment. However, not all staff will be willing or prepared to accept reductions in staff pay and/or benefits.

A recent case in the Employment Appeals Tribunal (the EAT) examines the question of fairness of dismissing an employee that refused to agree to a pay cut.

The case of Garside and Laycock v Booth concerned a company that decided that in order to avoid making any staff redundant it needed to implement a 5% pay cut for its staff. An employee, Mr Booth, objected to any pay cut. He had held his job for 7 years. Out of a total number of 77 staff, Mr Booth - by the date of his dismissal- was the only one that refused to agree to the pay cut.


The Employment Tribunal which originally heard his claim said that it was unfair that he was dismissed on the basis that it was reasonable of Mr Booth to have sought to maintain his terms and conditions. However, the EAT stated that the Employment Tribunal approached the case in the wrong manner. It said that the correct question to ask is whether the employer has a potentially fair reason for dismissal, and then acted fairly in treating that reason as the reason for dismissal. The EAT also stated that it was not necessary to show that the employer's situation was so desperate that the only way of saving the business was to propose stringent reductions in pay and benefits. It said that an Employment Tribunal should look at the circumstacnes including the size and resources of the business, and if it was reasonable to treat the refusal to agree to a contractual variation as sufficient to dismiss the employee. The EAT also said that the way in which the pay cut was negotiated would be relevant.

This case confirms that it can be fair and reasonable for an employer to take the measure of dismissal if an employee refuses to accept a reduction in pay. There should clearly be discussions with the staff, ideally both in a group and individually, explaining the reasons and need for the pay cut. The employer should listen to the reasons for objecting, but if the employer requires this change it will be entitled to go through a process leading to dismissal if the employee refuses to accept the reduction in pay. This case suggests that employers seeking steps to keep staff by reducing pay or benefits in order to avoid making any redundancies can dismiss an employee that refuses to go along with such changes. This must be welcomed by those employers seeking to retain their staff skills and experience, to keep them competitive, and ensure they are ready to adapt to any future increase in work.  

If you require any advice on matters raised in this article please do not hesitate to contact us.              

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