Can you implement pay cuts fairly?

In this age of austerity, many organisations have to review their costs and find more creative ways of saving money. For some organisations, the only way to save has been to take quite drastic measures, for example making cuts to employees’ pay and benefits.

This was true of Garside and Laycock Ltd (G&L) who, in order to avoid redundancies, decided to cut its employees’ salary by 5%. However, one of its employees refused to accept the change and was dismissed from his job which he had held for the previous seven years. He brought a claim before the employment tribunal who decided that the employee had been unfairly dismissed. The basis of the employer’s claim was that it was reasonable for him to maintain his old contractual terms and conditions and not accept a pay cut.

G&L appealed and the Employment Appeal Tribunal (EAT) held that the original employment tribunal misdirected itself in finding that it was unfair to dismiss an employee who refused to accept a pay cut. The EAT said that the test applied by the tribunal (that an employer may only offer less favourable terms if the survival of the business depended on it) was wrong. Instead the correct test is whether the employer, having established “some other substantial reason”, acted reasonably and whether the dismissal was “in accordance with equity”.

The EAT considered that this may have particular force where management proposes a cut to workers’ pay, but not to its own. The EAT allowed the appeal and the case will be heard at a fresh tribunal.

What are your thoughts on this type of pay cut? Let us know by commenting below!

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