ABG Employment Newsletter – July 2011

Dismissal for refusal to accept a pay cut

If an employer wants to make changes to terms and conditions, it can go through a process of consultation to seek agreement to the changes. Imposing changes without any consultation is likely to be a breach of contract giving rise to constructive dismissal claims, unless the contract gives the employer the right to make changes.

If all or some of the employees do not agree to the proposed changes after consultation, the employer may be able to dismiss on the grounds of “some other substantial reason” and offer employment on the new terms and conditions. The fairness of such a dismissal is decided by considering whether the employer acted reasonably in proposing the change and whether a reasonable process of consultation was followed.

In the case of Garside and Laycock Ltd -v- Booth the company experienced a drop in sales and profits and asked employees to take a 5% pay cut. After a series of meetings with the workforce, all employees agreed to the change except two. Their employment was terminated and they were offered new contracts on the reduced pay

One of the employees brought a claim for unfair dismissal which was upheld by an Employment Tribunal on the grounds that the employer had not been in a desperate financial situation and the employee’s refusal to accept the pay cut was reasonable.

The EAT allowed an appeal against this ruling and held that the Tribunal had applied the wrong test. It pointed out that the proposed change does not have to be crucial to the survival of the business and the test is not whether the employee’s refusal was reasonable, but rather whether the employer’s decision to impose the pay cut was reasonable. It does not follow that, if the employee is acting reasonably, the employer is acting unreasonably.

Although the Tribunal’s decision was set aside, the case has been remitted for reconsideration by a fresh Tribunal. The EAT has pointed out that at the re-hearing the Tribunal must consider whether the dismissal was “in accordance with equity” which will include considering whether the management team were proposing a cut in their own salaries in addition to those of the workforce. A further important factor in such cases is whether the overwhelming majority of the workforce has accepted the change (which implicitly supports the reasonableness of the employer’s actions).

Ex-gratia payment on termination

In the case of Publicis Consultants UK Ltd -v- O’Farrell the EAT has held that a termination payment which was described by the employer as “ex-gratia” could not be used to meet its obligation to pay damages for breach of contract where employment was terminated on short notice.

In this case the employee was dismissed on less than her contractual notice period of 3 months. She was paid a severance package, including a payment which was described in the termination letter as “an ex-gratia payment equivalent to 3 months salary”. Her contract did not include a right to pay in lieu of notice.

She succeeded in a claim for breach of contract for damages for loss of salary during the balance of her notice period. The Tribunal and EAT ruled that the 3 months payment was truly ex-gratia and did not go towards the payment of damages for breach of contract (normally described as payment in lieu of notice).

This case is a useful reminder of the care that needs to be taken when drafting termination letters. It may well have been the company’s intention that the so-called ex-gratia payment was to cover the employee’s notice period, but by describing it as ex-gratia the company unwittingly gave the employee grounds for claiming a windfall.

Reasonable adjustments and employer’s knowledge of disability

In the case of Wilcox -v- Birmingham CAB Services Ltd the EAT has confirmed that the duty to make reasonable adjustments under the DDA applies where the employer knows (or could reasonably be expected to know) both that the employee is disabled and that the employee is likely to be substantially disadvantaged by that disability.

In this case the employer did not know and could not reasonably have been expected to know that the claimant was disabled until it received a consultant’s report that had been jointly commissioned at the direction of the Tribunal. Therefore the employer had not been under a duty to make reasonable adjustments at the relevant time.

Recommendations in discrimination cases

Where a tribunal upholds a complaint of unlawful discrimination, it can make recommendations for action to be taken by the employer for the purpose of obviating or reducing the adverse affect of the discrimination which has taken place.

The case of Lycee Francais Charles de Gaulle -v- Delambre shows that a tribunal is entitled to make far reaching recommendations when a case is upheld. In this case the Tribunal had found that the claimant had been unlawfully discriminated against on grounds of age and had also been victimised. The Tribunal’s recommendations required circulation of its decision to the employer’s board of governors and senior management team, a review and amendment of the employer’s discipline and grievance policies and equality and recruitment policies by a qualified HR adviser, and formal equality and diversity training to be delivered throughout the employer’s organisation.

In rejecting an appeal against these recommendations the EAT endorsed the Tribunal’s decision, including the recommendation for equality and diversity training and for a review of policies by an HR specialist.

Sexual orientation discrimination

In the case of Grant -v- HM Land Registry the Court of Appeal considered whether a gay employee who had “come out” at work had been subjected to discrimination and harassment on the grounds of his sexual orientation. It held that he had put his sexuality into the public domain and so had risked this information being discussed between his colleagues.

When he was promoted and moved to a new office, the employee wished to tell his colleagues in his own time that he was gay. However, his new line manager made reference to his sexual orientation in several conversations with his new colleagues. In doing so she had no intention of violating his dignity or creating a degrading or humiliating environment for him.

The Court of Appeal ruled that the acts of the line manager did not amount to discrimination or harassment despite the fact that the employee was upset and felt uncomfortable as a result. The Court accepted that the fact that an employee has come out does not mean that subsequent remarks or references to their sexuality cannot amount to discrimination or harassment. However, this will depend on the circumstances and, in this particular case the manager’s remarks were not unlawful. Having chosen to make his sexual orientation generally public whilst he was at the first office, any grievance he had about the information being disseminated to others following his transfer was unreasonable and unjustified.

Equal pay claims and TUPE transfers

Male and female employees who perform equal work are entitled to equal pay unless the employer can show that the difference in pay is due to a material factor which does not involve sex discrimination. This is known as the material factor defence.

In the case of Skills Development Scotland Co Ltd -v- Buchanan the material factor defence was upheld where the female claimants and their male comparator had been transferred under TUPE from different employers to the new employer on different salaries. This defence defeated equal pay claims which were brought 6 years later.

The EAT said that although the employer could potentially have done more to reduce the pay disparity, perhaps by freezing or red circling the male comparator’s pay rather than including him in across the board pay rises, this was not the point. There was a risk that a pay freeze might have breached his contract, but in any event it was the TUPE transfer which was and which remained the root cause of the pay disparity. It had nothing to do with sex discrimination and the mere effluxion of time did not change that. In the circumstances the female claimants could not claim equality of pay with the male employee who had transferred in to the employer on a higher rate.


The comments in this note are of a general nature only. Full advice should be sought on any specific problems.

Christopher Gigg 
+44 (0)115 934 3310

David Hardstaff
+44 (0)115 934 3323

Kathryn Meir
+44 (0)115 934 3308