Mostyn v S and P Casuals Ltd (Employment Appeal Tribunal) 

Employers who unilaterally reduce an employee's contractual pay cannot rely on having 'reasonable and proper cause' to breach the implied term of mutual trust and confidence. In itself, an enforced pay cut (whether actual or anticipatory) contradicts a fundamental, express term of any employment contract which will entitle the relevant employee to resign in response and treat himself as constructively dismissed.

In his role as sales executive, an employee had reported disappointing figures over the course of a four year period. As a result, his employer asked him to accept a reduction in his basic remuneration of almost 50% (from £45,000 to £25,000 per annum). He refused, and alleged that this was a crude move to remove him from the business. When the employer rejected his position and indicated that it would move forward with a unilateral pay cut, the employee resigned without notice and brought a tribunal claim on the grounds of constructive unfair dismissal. He argued that such conduct breached the implied term of mutual trust and confidence within their employment relationship.

The Employment Tribunal rejected the claim on the grounds that the employee's poor performance and failure to remedy this gave his employer reasonable and proper cause to take action which would otherwise breach the implied term. On appeal, however, this finding met strong criticism. The EAT held that when considering the repudiation of an employment contract, tribunals should never assess whether the 'reasonableness' of an employer's conduct could justify such a breach. Furthermore, unilateral pay cuts abrogate a separate and fundamental express term of any employment contract (in relation to remuneration) and will generally entitle immediate resignation. The ET's findings could not stand and the matter was remitted to a differently constituted tribunal. 

This decision clearly reminds employers that – regardless of notions of fairness or reasonableness - the threat or imposition of a unilateral pay cut will generally represent a fundamental breach of contract, entitling the employee to resign with immediate effect with potential claims of unfair and wrongful dismissal.