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Case law: Employers may have to consult as though making redundancies when imposing pay cuts

Employers imposing pay cuts rather than making staff redundant may have effectively made employees redundant if they subsequently resign - triggering the requirement to collectively consult with employees - according to a recent legal ruling.

Legal Alert

This update was published in Legal Alert - January 2016

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

An employee in Spain was made redundant. He argued that one of his colleagues who had resigned after the employer had cut his pay by 25 per cent, had also been made redundant. If the employee was right it meant that more than 10 per cent of the workforce had been made redundant, triggering the requirement for the employer to collectively consult with its employees before dismissing them.

The European Court of Justice (ECJ) found that under EU law, ‘the fact that an employer - unilaterally and to the detriment of the employee - makes significant changes to essential elements of his employment contract for reasons not related to the individual employee … falls within the definition of ‘redundancy’ for the purpose of … [the relevant EU Directive]’. It therefore ruled that a resignation following a pay cut could amount to a redundancy in certain circumstances.

The UK law on the requirement to consult with employees before making them redundant also defines ‘redundancy’ widely, so the UK courts might well have reached the same decision as the ECJ on the facts of this case.

In addition, under recent UK legal rulings an employee who accepts a unilateral reduction in pay, and remains in their job, may still be able to claim constructive dismissal if they can show they only did so in order to mitigate their loss. These decisions make the issue even more complicated for employers planning on imposing pay cuts.

Operative date

  • Now

Recommendations

  • Employers imposing pay cuts rather than making people redundant should be aware that employees may resign, and claim that they have been made redundant in any event, and there should therefore have been a collective consultation

Case ref: Pujante Rivera v Gestora Clubs, Case C-422/14

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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