Employer enforced pay cut causes constructive dismissal claim.

Employer enforced pay cut causes constructive dismissal claim.

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4 May 2018

Following a decrease in sales between 2012 and 2016 Mr Mostyn’s sales declined and S&P, Mr Mostyn’s employer, asked him to take a pay cut from £45K to £25K to more accurately reflect his contribution. When he refused and complained about their actions, they did it anyway and as a result Mr M resigned and claimed he had been constructively dismissed.

‘Constructive dismissal’ arises when an employer does something to an employee that breaches the employee’s employment contract to such an extent that the employee regards himself as having been dismissed (a ‘repudiatory breach’) i.e. it must arise from fairly major things like, in this case a £25K enforced pay cut. ‘Employment contract’ is the express (written down) terms of employment, but also includes implied terms – things that don’t need to be written down – they go without saying. One of these is the implied term of trust and confidence.

In Mr M’s case he said that the pay cut was in breach of both the implied term of trust and confidence and an express term in his contract which stated what his salary was. The EAT agreed and corrected an earlier lower tier tribunal’s ruling that although the employer had breached the implied term of trust and confidence it had good reason to do so (and therefore the dismissal was ok.) In reaching this conclusion the tribunal had focussed only on the breach of the implied term of trust and confidence. The EAT pointed out that the repudiatory breach of an express term and an implied term could never be mitigated by the employer having just and reasonable grounds, and so Mr M was unfairly constructively dismissed.

S&P could have achieved the potentially fair dismissal of Mr M perfectly fairly by using a capability or performance management procedure, albeit it would have taken 3 – 4 months to have reached an end point. Another tactic it might have used could have been to commence a similar procedure, but at the point of commencement offered Mr M the opportunity either to leave with a settlement agreement (in exchange for a termination payment), or to take a pay cut in place of undergoing performance management. Mr M’s chances of winning a constructive dismissal case here would be greatly reduced provided the option to leave or take a pay cut was genuinely optional; and provided S&P could show that they were prepared to genuinely performance manage Mr M with a view to his improving his sales, or leaving if insufficient improvement was achieved.

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