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Case law: Unilateral pay cut by employer amounts to constructive dismissal of employee, even if there are good reasons for it

Employers cutting an employee's pay without their consent should note that they cannot justify breach of an express term of the employee's terms of employment, and breach of the implied duty to maintain mutual trust and confidence, by relying on reasonable or proper cause for it - as it automatically amounts to a constructive dismissal.

July 2018

This update was published in Legal Alert - July 2018

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.

In 2010, the employer of a salesman of 11 years' standing cut his pay from £65,000 to £45,000, despite good sales figures. He reluctantly agreed to this. His figures then deteriorated significantly for several years. During late 2015, his employer held one-on-one meetings with employees, including the salesman, in which it explained that it needed to cut costs. The employee was later invited to a meeting about his performance – the invitation letter stating that the business needed to save money, and a possible outcome of this meeting could be a pay cut.

At the meeting, the salesman put forward reasons as to why his sales had fallen, including reasons that were not his fault, such as the quality of goods from suppliers, but he was offered a pay cut from £45,000 to £25,000. There was no follow-up, but a fortnight later he was mistakenly sent an email by a work colleague which said he was "…costing us on a daily basis. Get it done tomorrow...".

The salesman therefore told his employer he was unhappy with what he called his "disciplinary meeting", that he considered his employer had breached his contract of employment, and that he did not accept the pay cut offered.

The employer treated his letter as a grievance and investigated the circumstances, but did not uphold the grievance. He was told his pay would be cut immediately, as previously proposed.

He resigned and claimed (among other things) constructive dismissal. There is constructive dismissal when an employer has done something that is so fundamentally inconsistent with the employer/employee relationship – a 'repudiatory breach' - that the employee is entitled to treat him or herself as dismissed. The salesman argued that the express provisions of his contract of employment dealing with his salary, and the implied duty of trust and confidence required of an employer and employee, had both been breached, and these were repudiatory breaches.

The Employment Appeal Tribunal agreed. It said a unilateral pay cut which breached an express term of an employee's contract, and/or the implied term of trust and confidence, would always be repudiatory breaches, irrespective of whether the employer had a reasonable or proper cause for its actions.

The case was remitted to a fresh Tribunal on other grounds.

Operative date

  • Now

Recommendation

  • Employers proposing to cut an employee's pay without their express consent should note that they can never justify this breach of an express term of the employee's terms of employment, or breach of the implied duty to maintain mutual trust and confidence between employer and employee, by arguing reasonable or proper cause for it - as it automatically amounts to a constructive dismissal

Case ref: Mostyn v S and P Casuals Ltd [2018] UKEAT 0158_17_2202

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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