Garside and Laycock Ltd v Booth: Dismissal for refusing to accept a pay cut

5 July 2011

Summary
The EAT has recently handed down its decision in Garside and Laycock Ltd v Booth, which considered the fairness of a dismissal for failure to accept a pay cut. The EAT clarified that the appropriate test was whether it was reasonable in the circumstances for the employer to dismiss, rather than asking whether it was reasonable for the employee to accept the lesser terms offered to him.

Background
In 2009, Garside and Laycock Ltd (“the Company”) experienced a downturn in trade and sought to reduce its costs by asking 77 employees to accept a 5% pay cut, in order to avoid redundancies. Mr Booth was the only employee who refused to agree to the new terms and conditions which incorporated the pay cut and, as a result, he was dismissed. The Employment Tribunal found that the dismissal was unfair. In reaching its decision, the Tribunal found that it was reasonable for the employee to resist the employer’s attempt to reduce his pay.

Judgment
The Company appealed the decision and the EAT found that the Tribunal had misinterpreted the decision in Catamaran Cruisers Ltd v Williams and Others [1994] IRLR 386. That case did not impose a burdensome requirement that an employer could only seek to impose a pay cut in a situation so desperate that such action was the only way of saving the business. Furthermore, the EAT said that the Tribunal had erred in assessing the reasonableness of the employer's decision by asking what was reasonable for the employee to do? The correct test was whether the employer acted reasonably in treating the “some other substantial reason” as a sufficient reason for dismissing the employee. The EAT held that the case should be remitted to a fresh Tribunal for rehearing and provided further clarification to employers (and Tribunals) about what factors should be considered when assessing the reasonableness of dismissing in these circumstances, namely

• whether, in the circumstances (including the size and resources of the employer's undertaking) it was reasonable to treat the refusal to agree to a contractual variation as a sufficient reason for dismissing the employee, and;
• whether the dismissal was 'in accordance with equity'.

Comments
This case provides some useful guidance in a period when employers often want to reduce overheads but maintain its workforce and consequently seek to change terms and conditions. The dissenting employee’s own circumstances are not to be considered in assessing the fairness of a decision to dismiss; it is the reasonableness of the employer’s decision. Employers must ensure that they follow a fair procedure (for example, they should inform and consult with employees over the changes) and ensure that the proposals themselves are fair. The EAT pointed out that in assessing the fairness of such a decision, a Tribunal may be required to consider whether management have also been subject to a pay cut.

We would be happy to talk to any client requiring further advice in relation to this area of law.

Kate Duffy
+44 (0)151 600 8611
kate.duffy@hilldickinson.com