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How do you make pay cuts and avoid unfair dismissal claims?

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Introducing pay cuts, or any other change to employees’ contracts, should follow a period of consultation with the workforce. Changes are more likely to be accepted by the workforce if they feel consulted or included in the process. Clear communication about what the changes are and why they are necessary can go a long way to making the transition smooth. However, if the change is not satisfactorily agreed by both parties, you could find it difficult to enforce the change.

One option open to you is to serve notice and terminate the employment of staff who will not agree to the changes. You can then offer to immediately reemploy them under the new contract terms. This may be seen as a lower risk option than simply imposing the changes without consultation or notice.

However, as this is technically a dismissal, there is always going to be an element of risk involved. A dissatisfied employee could make a complaint to an Employment Tribunal for unfair dismissal, as demonstrated in the recent case of Garside and Laycock Ltd v Booth.

Following Mr Booth’s refusal to accept a pay cut, Garside terminated his employment and offered to reemploy him on reduced pay. Mr Booth refused the offer and brought a claim against Garside for unfair dismissal.

The Employment Tribunal upheld Mr Booth’s claim. It found that Garside’s reason for dismissal, being that they were in a poor financial position, was not “cogent” and that Mr Booth’s refusal to accept the pay cut was reasonable.

However, Garside appealed to the Employment Appeal Tribunal (EAT) which found that there was no basis to the finding that the reason for dismissal lacked cogency. The EAT also concluded that the Employment Tribunal had wrongly focused on whether Mr Booth’s decision not to accept the pay cut had been reasonable.

For an unfair dismissal claim to be successful, the employer’s decision to dismiss must have been unreasonable. Now that this point has been clarified, the case will be heard by a fresh Employment Tribunal to decide whether the dismissal was fair or not.

In an unfair dismissal claim, an employment tribunal will concentrate on the reasonableness of the employer’s decision to dismiss. Another important point to consider for any business looking to make changes to staff contracts is, if you feel that dismissal is the only option; ensure that you follow a reasonably fair dismissal process.

You should also look to ensure all procedures are followed and documented fully. This will considerable aid you, should you find yourself answerable at a tribunal.

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