In the current time, businesses in peril, may consider taking drastic action to force employees to take a pay cut or be dismissed.
Redundancy is one of the potentially fair reasons for terminating someone’s employment but, unless there is a genuine redundancy situation within the business organisations will not be able to dismiss employees fairly by simply saying they are “redundant”.
A redundancy situation only occurs where a business
- closes down altogether,
- re-locates or
- the employer has a reduced need for employees to carry out work of a particular kind.
Therefore, if the issue is just that the current employee is too expensive; there will not be a genuine redundancy situation. However there is an option employer may consider.
Employers faced with extreme difficulty can consult with the employees, giving them a full appraisal of the situation and try and agree a variation to their contracts and an alternative to dismissal.
The employee(s) can be expected to acquiesce reluctantly to such a change, but if the situation is openly discussed and the consequences (for both the business and them) of failing to agree are fully explained the employer may be able to reach a compromise.
If no agreement can be reached then dismissal may be the only option but this would be for “some other substantial reason” (another potentially fair reason for dismissal) rather than redundancy.
The employee will need to be made aware that this is a potential outcome if no variation can be agreed. The employer could then immediately offer to re-engage them on the new terms in order to try and reduce any potential liability.
Choosing this pathway involves a legal risk and needs to be very carefully handled; specialist advice should be taken.
HIstoricaly this has been an area fraught with difficulty, see Mitchells of Lancaster (Brewers) Ltd v Tattersall. however a 2011 case helps personnel professionals clarify the issues involved in following the consulation and dismissal pathway.
The case of Garside And Laycock Ltd v Booth (2011) has established three hurdle for employers whilst clarifying the position for employers who seek to justify, to the Tribunals’ satisfaction, that the reason for the salary change is justified in law;
1. In this case, by the extreme peril faced by the company (i.e. some other substantial reason)
2. that the decision was equitable (fair)
3. the employer had acted reasonably in all the circumstances including the size and administrative resources of the employer’s undertaking)
It is useful to read the steps taken by the employer, if you are considering this route to dismissal, it carries a legal risk. Note that the Employment Appeals Tribunal (EAT) confirmed that a substantial ground had been established, therefore one of the three hurdle listed above had been overcome.
Garside and Laycock provided building and maintenance services to public sector clients (such as low‑value maintenance, minor works and higher‑value project work), as such the business was labour intensive.
In 2009 it was undergoing trading difficulties; their predicted sales in the year 2008‑2009 had dropped from the previous year. The gross profit was low; to maintain the work at least a two per cent profit needed to be demonstrated. A consequence was that the employer decided to ask its employees to accept a reduction in pay.
What was proposed was a reduction of five per cent. Only two members of the workforce ultimately refused to accept the cut to his pay packet and the employee was dismissed from his job as a welding maintenance worker (which he had held for the previous seven years).
The underlying facts
The underlying facts are that the employers had undertaken a relatively comprehensive fact‑finding exercise and held a “number of meetings” at which all staff were addressed by management, telling them of “high‑level” business forecasts and predictions. After those meetings, at a time in April 2009 the employees were asked to indicate on a written slip whether, in order to avoid possible further redundancies, they would accept a pay reduction of five per cent with effect from the May 2009 payroll. The letter asked that the employees agreed to accept a majority vote of 51 per cent or more; it sought 100 per cent agreement, and insisted that abstentions would be counted as a vote in favour of the change. A substantial majority of the employees voted in favour (77); 7 abstained; 4 voted no.
Of those four, two were already subject to disciplinary hearings in respect of gross misconduct, for which they were subsequently dismissed. The Tribunal made no finding, although it had evidence before it, we are told, that, of the remaining two, one subsequently accepted the pay cut. If that is so, it left the Respondent as the only employee who held out for his previous pay level. It was unilaterally imposed upon him.
The employers had three meetings with the employee including one, on the date of his dismissal, where he was offered a new contract which gave him the option of either having the new terms and conditions offered to all staff or to maintaining the terms and conditions save as to pay.
The employee was not prepared to accept the offer and he was dissmised. He, properly, appealed against the decision to dismiss him for failing to accept the pay cut. During the appeal hearing he was offered a review of his pay levels after six months, but he rejected that too. Ultimately, therefore, he was dismissed.
The initial tribunal erred in law and the Appeals Tribunal directed that “ ….[A] new Tribunal will begin on the basis that some other substantial reason has been established; the only issue is whether, in the light of that particular reason, it was or was not fair to dismiss the employee, having regard to all the circumstances, equity and the substantial merits of the case.