UK: Dismissed For Refusing A Pay Cut

Last Updated: 22 November 2011
Article by Hugh More

In difficult trading conditions employers may be forced to consider adjustments to pay or bonuses as a means of ensuring the company's survival. But employers cannot change their employees' contracts unilaterally (for example by reducing pay) without a risk of constructive dismissal claims. Even where an employer has a variation clause in the contract it must still act reasonably and consult its employees over significant changes, aiming to obtain their consent. If consent cannot be obtained, employers may have to force through change by dismissing recalcitrant employees and offering to re-hire them on new terms. Plainly this is a risky process.

Two recent cases illustrate how the Tribunals might approach an unfair dismissal claim where a pay cut has been imposed against an employee's will.

In Garside and Laycock Ltd v Booth, the company had been undergoing trading difficulties and had asked all its employees to accept a 5% reduction in pay. Mr Booth was one of only two employees of more than 80 who refused to comply and was subsequently dismissed. He brought a claim to the tribunal, alleging that his dismissal was unfair. The Tribunal first had to decide whether there was a potentially fair reason for the dismissal. It decided that in the circumstances, the company had a substantial reason to dismiss, namely the difficult economic conditions, which made the situation so desperate that the only way of saving the business was to propose stringent reductions in pay and conditions. However it was not reasonable for the company to expect an employee to take a pay cut, so the dismissal was unfair.

The company appealed to the Employment Appeal Tribunal (EAT) which overturned the tribunal's decision and made several helpful points for employers facing this situation.

  1. The test the Tribunal had applied in assessing whether the change was reasonable was wrong – it was not necessary for an employer to be in desperate straits before it could act reasonably in imposing a pay cut.
  2. Secondly, the Tribunal had gone wrong by assessing the reasonableness of the employer's decision to dismiss by asking what it was reasonable for the employee to have done in the circumstances. The question it should have asked was what it was reasonable for the employer to do. It may well be that the decision of the employer, in order to be reasonable, will take account of the employee's views. However this is very different from saying that the decision depends upon what the employee thinks.
  3. The Tribunal gave as one of its reasons for rejecting the employer's approach as reasonable, that it lacked 'cogency'. The EAT did not agree. The business faced what the Tribunal accepted were trading difficulties and was seeking to reduce its costs. Furthermore, it was not unreasonable to try to ensure that all members of the workforce were on the same pay scales, rather than one employee being paid more simply because he had refused to accept a cut that all the others were prepared to take.
  4. With regard to fairness, assessing this might include considering for example, overall fairness such as management proposing to cut workers' pay, but not its own. It might also involve considering whether or not there were other cost saving measures that might also have been appropriate.

In Slade v TNT (UK) Ltd, TNT wanted to discontinue a bonus scheme which incentivised employees to meet certain deadlines when sorting goods at its delivery hubs. The scheme, which had been introduced in 1983, was discontinued for new joiners from 2005; in 2009, TNT began negotiations with the union to discontinue it for current employees as well. After discussions over several months (and several ballots), TNT wrote to the workforce to explain its position. It made a final offer to 'buy out' the value of the bonus in return for employees' agreement to change their terms and conditions. If that was rejected, employees would be issued with contractual notice to terminate their employment. The offer was rejected and the employees received contractual notice. They were then offered re-engagement on the expiry of their notice period, on the same terms and conditions but without the specific bonus scheme and without the buy-out bonus.

The Tribunal considered that TNT had established 'some other substantial reason' for the dismissal (namely, one which it reasonably believed was a sound business reason) and went on to consider whether the dismissal was 'fair', seeking to balance the advantages to the business against the effect on the employees. They concluded that, taking into account its previous engagement in negotiation, TNT's approach was wholly reasonable.

The employees appealed to the EAT which rejected the main arguments in their appeal (having taken the Garside decision into consideration):

  1. The employees had emphasised the severe impact of this pay cut upon the workforce and suggested that the Tribunal had failed to engage with this. The EAT disagreed. The Tribunal had commented that both parties had acted reasonably in the circumstances, but that its focus must be the reasonableness of TNT's conduct. This did not mean that the Tribunal had not undertaken a proper balancing exercise between the employer and the employees.
  2. The employees had also argued that it was not equitable for TNT to withdraw the offer of a 'buy out' lump sum when they offered re-employment. If TNT could afford to mitigate the impact of the change before terminating the contracts, they argued, it was inequitable for it not to do so after terminating the contracts. The EAT did not agree that the only reasonable approach would have been for TNT to have offered re-engagement on terms including the lump sum. On the contrary, the lump sum had been offered to secure a benefit to TNT (agreement to the changes without risk of industrial action or litigation). When it was unable to obtain that agreement, it was reasonable to hold back the lump sum (not least as it could then use this to address any threatened litigation).

Practical tips

Both cases show that the law give employers a wide margin within which to take business decisions to make amendments to pay and bonuses, provided that they implement these in a reasonable way (that would include acting reasonably over withdrawing an incentive payment). It is not necessary for the survival of the business to depend on the change and the focus is on the reasonableness of the employer – not the reasonableness of the employee's perspective. Consultation is critical to reasonableness – in both these cases the employer was able to demonstrate that there had been extensive dialogue with the workforce.

Employees are also likely to have an uphill struggle in cases where an overwhelming majority of the workforce accept the change.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.