17 May 2017

In the case of 'Garside and Laycock Ltd v Booth' the employer encountered trading difficulties and decided to ask its employees to accept a 5% pay reduction. The Claimant was one of two members of the workforce who refused to accept the proposal and he was dismissed.

The workforce comprised over 80 staff. The employer had attempted to avoid dismissal by offering to review the position after 6 months. He rejected the employer’s offer and then claimed unfair dismissal.

The reason for the dismissal in this case was “some other substantial reason”, one of the 5 potentially fair reasons for dismissal. The Employment Tribunal balanced the relative advantages and disadvantages of the reduction in pay and the imposition of new terms and conditions and ultimately found that the dismissal was unfair (correcting its initial judgment where it had said “fair”). The Tribunal noted the employer had not replaced the Claimant and was using outside contractors to do the work he did and concluded:

“Balancing the advantages and disadvantages of a pay cut and the refusal to accept it, the Tribunal concluded that it was reasonable for the Claimant to seek to maintain terms and conditions which he had enjoyed for many years and in particular not to agree to a significant reduction in pay in favour of an uncertain bonus scheme.”

The Tribunal had relied upon an authority from 1994 in its legal analysis as to the fairness of the dismissal.

Appeal successful

Upon appeal, the Employment Appeal Tribunal stated that the Employment Tribunal had misunderstood the authority which had in fact rejected the proposition relied upon by the Tribunal, i.e. that an employer may only offer terms which are less or much less favourable than those which pre-existed if the very survival of his business depends upon acceptance of the terms. The authority had held that a reorganisation or restructuring of a business could amount to some other substantial reason even if an alternative is not that the business may come to a standstill, but is merely “that there would be some serious effect upon the business."

The Tribunal had also wrongfully focussed upon whether it was reasonable for the Claimant to accept the change (rather than focus upon the dismissal by the employer and the reasonableness of the employer’s actions). The Employment Appeal Tribunal quoted from another case in this regard which said:

“It may be perfectly reasonable for an employee to decline to work extra overtime having regard for his family commitments, yet from the employer’s point of view having regard to his business commitments, it may be perfectly reasonable to require an employee to work overtime. We agree with the comment ‘it does not follow that if one party is acting reasonably the other is acting unreasonably.'”

In this case therefore the Employment Appeal Tribunal was satisfied that the Employment Tribunal had applied the law incorrectly. However, rather than simply substituting its decision for that of the Tribunal, the matter was remitted to a new Tribunal to rehear the matter.

Guidance in dealing with the issues

The Employment Appeal Tribunal gave useful guidance to employers facing these issues. Employers were reminded that the onus on establishing a potentially fair reason for dismissal is upon the employer. There needs to be “some other substantial reason of a kind such as to justify the dismissal of an employee holding the position that the employee held”. The Tribunal noted that “some other substantial reason” is identified not in terms of a specific reason which justifies dismissal but as being of a kind or a category or class as to justify the dismissal of an employee, i.e. it is a broad category of case. Simply identifying the existence of a substantial reason by itself is not sufficient since the Tribunal must be satisfied (in addition) that it was ultimately reasonable for the employer to dismiss the particular employer for that reason. In that assessment the Tribunal must answer that question, “in accordance with equity”.

The Employment Appeal Tribunal suggested that the word “equity” may have a particular force in these types of cases. For example where an employer proposes to reduce staff wages it could be highly relevant to the question of fairness (of any subsequent dismissal) to consider upon whom the wage cuts would fall. It may well be that they fell across the entire workforce but that might not be the position in each case. A Tribunal would have to consider whether equity, with its implied sense of fair dealing in order to meet a combined challenge of reduced trading profits, would be served by dismissals of those who refuse to agree to the wage cut.

In addition the Tribunal would also need to be satisfied that the procedure that was followed in effecting the dismissals was fair in all the circumstances too. That often requires a close focus upon the way in which the employer approached the issue in the particular circumstances. That could involve issues as to the extent to which the workforce were or were not persuaded by reasons which were not good and proper reasons for adopting a common approach in favour of cuts, when otherwise they might not have done so.

Going forward

Employers facing a downturn in work (and profitability) need therefore to carefully plan their approach and the potential impact upon staff. A number of options exist, including dismissals by reason of redundancy and ways of reducing the costs to the business (such as wage cuts). Acting fairly and reasonably in all the circumstances, with dismissal a last resort, should be a key consideration. A Tribunal will not accept an employer’s assumption that a dismissal was fair where a wage cut was not agreed without clear evidence that the full circumstances were considered in each case. Carefully planning the approach with sound employment law advice is essential.

The full judgement can be found: https://www.gov.uk/employment-appeal-tribunal-decisions/garside-and-laycock-ltd-v-mr-t-g-booth-ukeat-0003-11-cea

To discuss further please contact one of our BTO employment lawyers on 0141 221 8012.