Given the difficult economic climate over the past couple of years some employers have reached the point where the only way for the business to retain its current staff is to impose wage cuts. One way of achieving a wage cut is for all employees to agree to a change in their contract reducing their salaries. Although such agreement may seem unlikely, employees may well prefer a drop in wages as an alternative to redundancy.

In the recent EAT case of Garside and Laycock Ltd v Booth UKEAT/0003/11, the employer attempted to use this method in order to achieve a wage cut of 5%. All of their staff agreed to this change except Mr Booth and one other employee. As Mr Booth had not agreed to a change to his contract, he was instead dismissed then immediately offered re-employment on a new contract at the lower rate of pay. His employer attempted to keep negotiations open but Mr Booth continually refused to accept the terms offered and eventually raised a Tribunal claim for unfair dismissal.

The Tribunal found that Mr Booth had been unfairly dismissed. Their decision concentrated on whether Mr Booth’s refusal to accept a lower wage was reasonable – the Tribunal felt that it was. They also focussed on the need for the wage cut to be absolutely crucial to the business – the Tribunal felt that in this case a salary cut was not absolutely crucial.

Fortunately for employers the Employment Appeal Tribunal disagreed. The EAT stated that the focus of the decision in these circumstances should be the reasonableness of the employer’s decision to terminate the employment, rather than the reasonableness of the employee’s refusal to accept the pay cut.

Although the employer was ultimately successful in this case, the original Tribunal’s mistakes highlight that this can be a tricky area. While it is possible for employers to proceed in this way to force through wage cuts, it is very important that they follow a fair process, consult fully with employees and only terminate and offer re-engagement on the new terms and conditions as a last resort.