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Refusal to accept pay cut. The legal position.

These difficult economic times have meant that many employers across the region have had to look at ways of cutting their cost base.

Pay cuts have been proposed by many employers as an alternative to and way of avoiding redundancies.

But what happens if the employee does not accept the pay cut? Can the employer dismiss the employee?

A recent case at the Employment Appeal Tribunal (Garside and Laycock Ltd v Booth) provides useful guidance on the principles which apply when deciding the fairness of a dismissal when an employee refuses to accept a pay cut.

Dismissals in these circumstances can be for a fair reason amounting to “some other substantial reason” (SOSR). However, employers must also follow a fair process.

When considering the fairness of a dismissal in these circumstances Tribunals consider a number of factors including the employers reasons for making the change and whether or not a process of consultation was undertaken and the extent of any such consultation.

Mr Booth had succeeded in his unfair dismissal claim at the Employment Tribunal. One of the reasons he succeeded was that the Tribunal held that his employer had not been in a desperate financial position and on this basis the Tribunal held that the business reasons put forward by the employer were not “cogent”. In addition the Tribunal decided that Mr Booth’s refusal to accept the change was reasonable. However, on appeal the EAT overturned the original decision and gave some helpful guidance.

One important finding on appeal was that the EAT held that employers do not need go as far as to show that pay cuts are crucial to the survival of the business.

In addition, when considering the “fairness” of the dismissal Tribunals should focus on the reasonableness of the employer’s decisions (rather than the reasonableness of an employee’s refusal) and whether the employer has considered other options.

This guidance from the EAT is helpful to employers. As long as employers have a fair reason for the change and follow a fair process dismissals of employees who refuse to accept a pay cut can be fair.

For more information on employers obligations in relation to pay cuts and alternatives to redundancy contact Paul McGowan (paul.mcgowan@collingwoodlegal.com).

The information given in this article is up to date at the time of preparation.  However, Collingwood Legal can accept no liability or responsibility for any loss incurred as a consequence of actions taken based on this report.  We would recommend that you take legal advice.  We would be happy to help.

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