Unfair dismissal where employment has been terminated due to refusal to accept pay cut

During difficult economic times, it is not unusual for employers to consider alternative measures to redundancies which may include a proposal to the whole workforce to accept a pay cut.In a recent decision (Garside & Laylock v Booth) the Employment Appeal Tribunal revisited the appropriate test which should be applied to unfair dismissal claims where an employee’s employment has been terminated due to their refusal to accept a pay cut.In this case, the employer needed to cut costs and increase profits and made a proposal to its employees that they accept a 5% reduction in pay.  Mr Booth was the only person out of 77 staff members who refused to accept the pay cut.  His employment was terminated for “some other substantial reason” and he went on to challenge the fairness of the dismissal in the employment tribunals. At first instance, the employment tribunal held that the dismissal was unfair.  The tribunal applied the test that an employer may only offer less favourable terms if the very survival of the business depended on it.  The tribunal also approached the question of fairness by looking at whether the employee had acted reasonably in refusing to accept the pay cut.At the EAT, the appeal was upheld on the basis that the tribunal had applied too burdensome a requirement in relation to the circumstances in which a pay cut proposal will be considered reasonable.  The tribunal was also wrong to focus on the reasonableness of the employee’s decision and should instead have asked whether the employer had acted reasonably (both in relation to the proposal and the decision to dismiss following Mr Booth’s refusal to accept the pay cut).What does this mean for you?Unfortunately there will be difficult times where employers have to consider reducing costs in order to avoid jeopardising the profitability of its operation.  Redundancies may be one option for consideration but other cost cutting measures may avoid the need for job losses.  Ultimately it may be considered reasonable and fair to impose a variation of terms in order to reduce costs but in every case this will be determined on the specific facts and will take into consideration the proposal itself and the rationale supporting the proposal.  Case law suggests that the appropriate test is for employers to show that the changes were not imposed for arbitrary or capricious reasons but were in pursuit of a "sound business reason".