An Employment Appeal Tribunal decision has put employment tribunals right on at least two counts when dealing with claims from employees who have been dismissed for refusing to accept a pay cut. First, a good business reason is of course required, but employers do not need to be facing the threat of insolvency before taking such a step. Secondly, the fact that the employee is acting reasonably in rejecting the pay-cut does not necessarily make it unreasonable to impose it.

In this case the claimant was the last man standing. Out of nearly 80 employees, he was the only one left who refused to accept a reduction in pay. After a number of fruitless meetings, he was dismissed. Because the employment tribunal had got the law so wrong, the EAT did not feel able to substitute its own finding about whether the dismissal was fair, so it sent the case back to a fresh tribunal to hear the claim again.

Although the EAT's re-statement of the law is helpful to employers, it did not go so far as finding that the dismissal was fair, even on the unusual facts of the case. Indeed it reminded tribunals that as well as looking at the employer's business reasons and the position of the employees concerned, it was also important to look at the "equity" of the situation. In that context one factor that could be relevant was whether the management had themselves accepted a pay cut, or whether the cost-cutting measures fell only on the workforce.