Constructive dismissal - imposing a pay cut

19 June 2018

Employees often bring constructive dismissal claims based on a breach of the implied term of trust and confidence. An employer must not behave in a way which damages trust and confidence without 'reasonable and proper cause'.

The Employment Appeal Tribunal has looked recently at whether there can ever be reasonable and proper cause for an employer to impose a pay cut.

Mr Mostyn was employed by S and P Casuals as a sales executive. His sales figures had suffered in recent years. The company did not undertake a formal capability process. Instead, they asked Mr Mostyn to take a significant pay cut. He refused, and the company said they were going to cut his pay anyway. Mr Mostyn resigned and claimed constructive dismissal.

Mr Mostyn lost at the tribunal. The tribunal found that the employer had behaved in a way which could damage trust and confidence. However, they said that the company had reasonable and proper cause for cutting pay. The tribunal took into consideration Mr Mostyn’s bad sales figures and his lack of action to address this. Mr Mostyn appealed.

The EAT agreed with Mr Mostyn. In cutting Mr Mostyn's pay, the employer had also breached an express term of Mr Mostyn's contract. The question of reasonableness was therefore irrelevant. There can never be 'reasonable and proper cause' for repudiating the contract or for breaching the implied term of mutual trust and confidence where the breach consists of the unilateral imposition of a pay cut on an employee. The tribunal had erred in concluding that the contract had not been repudiated. It followed that Mr Mostyn had been constructively and wrongfully dismissed.

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