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pay-cuts – fair if everyone’s in the same boat?

6 July 2011

As employers look to cut costs, the employment appeal tribunal has given guidance to those seeking to impose pay-cuts.

Building maintenance company Garside and Laycock faced trading difficulties and sought to reduce employees’ pay by 5%. Mr Booth was the only employee out of 88 not to accept the pay-cut and was dismissed.

The EAT set aside an employment tribunal’s decision that Mr Booth was unfairly dismissed and in doing so reminded us that:

  • a proposed pay-cut need not be “vital for the employer’s survival” to justify a dismissal for not accepting it
  • when considering fairness the correct question to ask is whether it was reasonable for the employer to have dismissed the employee not whether it was reasonable for the employee to have rejected the proposed pay-cut and
  • whether such a dismissal is fair must be considered “in accordance with equity” and that it may not be equitable if a pay-cut is proposed for the majority of the workforce but excludes management

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