UK: Significant Pay Cut Will Be A Repudiatory Breach Grounding A Constructive Claim, Even If Employer Had Good Reasons To Cut Pay

Last Updated: 4 June 2018
Article by John McMullen

In Mostyn v S and P Casuals Ltd, the EAT held that an employer can never have reasonable or proper cause for breaching a core express term of the employment contract or breaching the implied term of trust and confidence by imposing a significant unilateral pay cut on the employee.

Mr Mostyn had worked as a salesman for S and P Casuals (S and P) for nearly 11 years. When Mr Mostyn started his employment with S and P his salary was £65,000. However, in 2010, he had reluctantly agreed to a pay cut to £45,000. During this time, Mr Mostyn was said to have maintained good sales figures. However by 2014, Mr Mostyn's sales had fallen dramatically. Like all staff, Mr Mostyn was sent monthly emails which showed that his sales figures were down.

In October and November 2015, all staff had individual meetings where they were told that S and P needed to save money. Whilst no further action was taken at this point, Mr Mostyn was later sent a letter inviting him to attend a meeting to discuss his performance, which said that a possible outcome of this meeting was that his pay would be cut.

During the meeting, Mr Mostyn presented several arguments for why his sales had declined, including that there was an issue with the standard of supplies. The meeting was not followed up. A couple of weeks later, Mr Mostyn received an email in error in which one of his colleagues told another that Mr Mostyn "is costing us on a daily basis. Get it done tomorrow...". Mr Mostyn wrote to S and P the next day complaining about the 'disciplinary meeting' he had had with S and P, stating that he could not consider the salary reduction offered by S and P from £45,000 to £25,000. In his letter he said that he considered that his employment contract had been breached. S and P treated this letter as a grievance which was investigated but not upheld. The employer confirmed that Mr Mostyn's pay would be cut as planned.

Mr Mostyn resigned on 31 March 2018 with immediate effect. Mr Mostyn said that the salary reduction was so significant that he considered that the express term of his contract dealing with salary had been breached and that S and P's behaviour meant that he could have no trust and confidence in their actions (which was a breach of the implied term).

Mr Mostyn claimed constructive unfair dismissal, amongst other claims. An employment tribunal held that Mr Mostyn had resigned because of the breach of the implied term; however this breach could be justified as S and P had reasonable and proper cause for imposing the salary reduction and breaching the implied term of trust and confidence. The tribunal therefore dismissed Mr Mostyn's claim.

The EAT disagreed. The EAT considered that "there is a real danger" if tribunals were to consider whether a respondent has reasonable and proper cause for conduct which amounts to a repudiatory breach of contract. The EAT noted that the tribunal had appeared to confuse the reasonable and proper cause test and the band of reasonable responses test for unfair dismissal. On the question of whether the dismissal was unfair, the EAT held that the tribunal had been wrongly influenced by their decision in relation to the reasonable and proper cause test and had not properly addressed the question of whether the employer had acted reasonably in treating the employee's capability as sufficient reason for dismissal. This question was remitted to a fresh tribunal.

The case acts as a cautionary tale to employers who are seeking to make changes to their employees' employment contract without employee consent, particularly where these changes are to fundamental provisions such as salary. The imposition of a significant pay cut will entitle the employee to treat the contract as breached, to resign and bring a claim for constructive dismissal. Employers should seek agreement from employees to a fundamental change of contract. Where employees do not agree, it is important to follow a fair process including consultation, as imposing the change will be a dismissal and re-engagement on new terms.

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.

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