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Employee’s refusal to accept a pay cut

In this month’s E-news, we look at whether a dismissal because of an employee’s refusal to accept a pay cut following a TUPE transfer, was a fair dismissal; whether a Tribunal could consider the reasonableness of a final written warning, when assessing the fairness of a dismissal and finally, whether it was fair for an employer to dismiss an employee on the recommendation of an external HR consultant.

Hazel and anor v Manchester College

The Claimants’ employment transferred to Manchester College under TUPE in August 2009. The College proposed to cut costs by making redundancies and by cutting the wages of the staff that were retained. The Claimants survived the redundancies and were offered new contracts of employment, on reduced wages. The Claimants would not accept the new terms and were dismissed in July 2010. Both Claimants brought claims for unfair dismissal.

At first instance, the Tribunal considered whether the dismissals were unfair under Reg 7(1)(b) of TUPE, which states that dismissals for a reason connected with a transfer are automatically unfair, unless the employer can show that the dismissals were for an Economic; Technical or Organisational reason (‘an ETO reason’) connected with the transfer, that entailed ‘changes in the workforce’.

The Tribunal found that the Claimants were dismissed because of their objection to the variation of their contracts and, as such, this was for a reason connected with the transfer. Whilst the Tribunal held that this constituted ‘an ETO reason’, they would not accept it was one that entailed ‘changes in the workforce’, given that it did not involve changes to the number of employees they employed, or the roles they carried out. The dismissals were therefore held to be in breach of TUPE and automatically unfair. The Tribunal also ordered the College to re-engage the Claimants on their former salaries.

On appeal, the EAT upheld the Tribunal’s decision.

The College appealed again to the Court of Appeal (CoA), arguing that the Tribunal had mistakenly focussed on the Claimant’s refusal to accept the pay cut, rather than the redundancies and wider cost saving plan, which they argued did constitute ‘an ETO reason’ entailing ‘changes in the workforce’. However, the CoA dismissed the appeal on the basis that the redundancies (and other measures) had already taken place and were not the cause of the Claimants’ dismissals. On the contrary, the CoA agreed that the ‘sole or principal reason’ for the dismissals was the Claimants refusal to accept the pay cut.

The CoA also rejected the College’s appeal regarding remedy, upholding the Tribunal’s decision that the Claimants be re-engaged on their former salaries.

In practice, employers need to be very careful when implementing adverse changes to employees’ terms, following a TUPE transfer. Further, if employers are considering making dismissals for reasons connected with a transfer, then it is important not only to make sure that it is for an ETO reason, but also that the reason relates to changes in the workforce. Otherwise, the dismissal will be held to be automatically unfair.

Adegobola v Marks and Spencer plc

In this case, the CoA confirmed that tribunals do have jurisdiction to investigate the validity of a previous warning, when deciding whether a dismissal was fair.

Adegobola (A) was given a final written warning in July 2010, for aggressive conduct towards a colleague. A sought to appeal the warning but this was declined by M&S, on the basis that it was out of time. Two further incidents followed, namely alleged aggressive behaviour towards her manager and improper use of her staff discount card by her sister-in-law, who sought to reclaim VAT. These allegations were proved during the disciplinary hearing and A was dismissed.

A appealed her dismissal but was unsuccessful and brought a claim for unfair dismissal on a number of grounds, including relating to the previous written warning. The Tribunal dismissed A’s claim stating, amongst other things, that it did not have jurisdiction to reopen the incident in July 2010 and consider whether the final written warning was unfair. The Tribunal found that A would have been dismissed anyway, because she had admitted misusing her staff discount card and was already on a final written warning.

A appealed the decision in the EAT, who upheld the first instance decision. A appealed again to the CoA, arguing, amongst other things, that the Tribunal had wrongly determined that it had no jurisdiction to investigate the earlier written warning.

The CoA found that the Tribunal was wrong to find that it did not have jurisdiction to consider the earlier final written warning, confirming that it is legitimate for an employer to rely on a final warning, provided that it was issued in good faith; that there were at least prima facie grounds for imposing it and finally, that it was not manifestly inappropriate to issue it.

In the case before it, the CoA found that it was not necessary to consider the final warning, given the Tribunal’s finding that the employer was justified in dismissing for an unrelated charge of gross misconduct. The CoA therefore dismissed the appeal.

In practice, this case highlights the importance of following a fair and thorough procedure at all levels, even where the sanction is likely to be a warning rather than dismissal. Indeed, this case reminds us that Tribunals can (and will) review the fairness of previous warnings, to ensure that they have been given in good faith, following a fair investigation and after considering whether a warning was the appropriate sanction in the circumstances.

GM Packaging v Haslem

GM Packaging (GM) appointed an external HR consultant to advise them on whether Haslem should be dismissed, for engaging in sexual activity with a colleague on company premises after hours.

Following an investigation, the HR consultant recommended that Haslem be dismissed and the managing director (MD) accepted this recommendation. When Haslem appealed, this was also delegated to a HR consultant and the appeal was rejected.

At first instance, the Tribunal held that it was reasonable to rely on the advice of an external HR Consultant, but found that the sole or principal reason for the dismissal, in the MD’s mind, was the fact that Haslem had engaged in sexual activity on company premises. The Tribunal considered that this was not an act of gross misconduct and that the dismissal was therefore outside the band of reasonable responses.

GM appealed to the EAT, who noted that the HR consultant (whose recommendation the MD had relied upon), had considered a number of derogatory remarks that Haslem had made about his employer, as well as the sexual activity he had engaged in, when recommending that Haslem be dismissed. Consequently, both incidents of misconduct were relevant for determining whether the dismissal fell within the band of reasonable responses.

The EAT overturned the Tribunal’s decision, holding that the Tribunal had erred by substituting its own view for that of the employer, when considering the question of reasonableness.

As well as confirming that employers are entitled to instruct external HR advisers to assist in disciplinary matters, this case serves as a useful reminder that fairness will be viewed through the eyes of the employer (rather than the Tribunal) when considering the question of reasonableness in unfair dismissal cases.

In the News

The Employment Rights (Increase of Limits) Order 2014 comes into force on 6th April 2014. The following increases will come into force where employees are made dismissed on or after 6th April 2014.

  • A week’s pay for the purposes of calculating statutory redundancy entitlement or a basic award increases from £450 to £464; and
  • The maximum compensatory award increases from £74,200 to £76,574.

If you have any questions, then please do not hesitate to contact:

Sejal Raja
t: 020 7227 7410

February 2014
© RadcliffesLeBrasseur


This briefing is for guidance purposes only. RadcliffesLeBrasseur LLP accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.