Can an Employee be Dismissed for Refusing a Pay Cut?

The Employment Appeal Tribunal has recently considered the ‘catch all' defence contained in the s.98 Employment Rights Act where an employer can fairly dismiss an employee for some other substantial reason.

In Garside and Laycock Ltd v Booth the employer dismissed an employee for his refusal to accept a reduction in pay following a reorganisation of the business. The employer's gross profit was low but it was not essential that pay cuts were made in order to carry on the business. The majority of the employees agreed to the change, Mr. Booth was the only one who declined to accept the new terms.

The EAT were required to consider Catamaran Cruisers Ltd v Williams which states Tribunal's must carry out a balancing process between the employee's point of view on the one hand versus the benefit to the employer, the employer's motives for the changes and whether the changes being imposed are for arbitrary reasons.

The Tribunal and the EAT in Garside and Laycock found that the reason fell within s.98, they then went on to consider whether the dismissal was reasonable in all the circumstances. Mr. Justice Langstaff was critical of the original Tribunal's finding and held that it misdirected itself as to how a Tribunal should assess reasonableness in this situation. It is quite clear from s.98 (4) it is for the Tribunal to focus on the reasoning and reasonableness of the employer, not the employee in deciding whether a dismissal for refusing a pay cut can be reasonable.

An employee's refusal to accept a pay cut should be taken into account by an employer. This will add force to the employer's justification for the dismissal and it's reasonableness. The EAT decided that due to the original Tribunal's misdirection of existing authorities the case should be remitted to a differently constituted Tribunal for a rehearing.

Employer's can therefore be justified in dismissing an employee for refusing to accept a reduction in pay following a business reorganisation, however, the process of doing so should always be conducted in line with a fair and reasonable procedure.

This case also highlights the disadvantage to an employer of having only one person on terms and conditions different from other staff which may lead to discontent between employees and disrupt industrial harmony.

For more information on the above or for advice on any other employment issue please contact our employment department on 020 7354 3000 or e-mail employment@colmancoyle.com

Author Profile: Georgina Kyriacou
Date published: 20th July 2011

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