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When faced with difficult trading conditions employers often prefer to make their employees take a pay cut rather than make them redundant, but can an employer impose a pay cut on its staff?

Changes to employment terms (including those relating to pay) can only be made with the agreement of the employee. If an employee objects to new terms the options available to the employer are to accept that it is bound by the existing terms or to dismiss the employee. Where a dismissal takes place the employer may need to demonstrate that the dismissal was fair as was the case when a Mr Booth brought a claim for unfair dismissal against his former employer, Garside and Laycock, arising out of his failure to accept a pay cut.

In this case the EAT held that the question that had to be asked was whether it was reasonable for an employer to dismiss an employee for refusing to accept a pay cut. The question as to whether it was reasonable for the employee to accept a pay cut, thereby avoiding dismissal, was not relevant to that decision.

The case has been remitted to a fresh tribunal who will have the task of deciding whether, on the evidence put before it, Garside and Laycock acted reasonably in dismissing Mr Booth. The tribunal is likely to hear evidence as to whether any other cost-saving measures could have been taken, thereby avoiding the need to dismiss Mr Booth.

Case reference: Garside and Laycock Ltd v Mr T G Booth

It is easy to see why Garside and Laycock took the decision to make their employees accept a pay cut rather than make them redundant since it is a cheaper and less unpleasant and disruptive process.  However, it is also a risky process, which should not be embarked on lightly as there is a chance that the dismissal would be held to be unfair. This is the case even where the employer offers to re-employ the employee on new terms, although in such circumstances the employer will have a strong argument that the employee has failed to mitigate their loss by not accepting employment on the new terms.

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