Employers are more keen these days, it seems, to make employees take a pay-cut or somehow alter the employee’s contractual terms than make staff redundant. It is cheaper, less disruptive and reduces the unpleasantness that comes with redundancy processes.
However, varying an employee’s contract of employment can be fraught with risk, as was demonstrated in Garside v Laycock & Booth UKEAT/0003/11/CEA
Mr Garside refused to take a 5% paycut when his employers decided they needed to become more profitable. He was the only employee out of 77 to refuse. He took his claim to the ET and won, but subsequently lost on appeal.
Let’s take a step back. It’s not uncommon for employers to want to reduce wage bills or make cutbacks, especially in the current climate. However unless the employee agrees to the variation to their terms of employment (which is what a paycut is) the employer could be in breach of contract and the employee might claim constructive dismissal if the cut is imposed on them unilaterally.
To avoid this risk the employer can terminate the employment and then re-employ on the new terms. That is what happened here but is also risky. This case should give employers some comfort though.
The company dismissed Mr Garside for “some other substantial reason” which is one of the potentially fair reasons for terminating a person’s employment available under s.98 ERA. That that was the reason relied on by the employer wasn’t in issue: the question was whether the company acted reasonably in relying on that reason (s.98(4)).
The ET made a complete mess of the case and in holding that the company had acted unfairly in dismissing Mr X completely misapplied the relevant law. The ET misapplied a previous case – Catamaran Cruisers Ltd v Williams & Others that they thought was authority for the proposition that it was only reasonable for an employer to dismiss in these circumstances where the future of the company was at risk if the reductions were not made. The EAT was unimpressed.
The correct test where an employee refuses a paycut is: is the employer acting reasonably if it subsequently dismisses him/her? The question of whether the employee should or should not have accepted the pay cut is immaterial to that decision.
What are the lessons for employers coming from this case?
Not many is the answer. This case was more about the Manchester ET getting itself confused than any new point of law. Having said that employers need to consult fully with staff before imposing a pay-cut in case employees do object and resign claiming constructive dismissal. Dismissing and then offering to re-employ on the new terms can also be a powerful tool to argue an employee has failed to mitigate their loss in not taking on the job on the reduced terms. See here for a previous blog I wrote on the subject some time ago.