Pay cut is a repudiatory breach - even if employer had good reasons

Mostyn v S and P Casuals Ltd

An employer can never have reasonable or proper cause for breaching an express term of the employment contract or breaching the implied term of trust and confidence by imposing a significant unilateral pay cut on the employee.

To bring a constructive dismissal claim, an employee must show that their employer has committed a repudiatory (i.e. very serious) breach of contract and accept that breach of contract by resigning promptly in response to it.

Background

In response to his declining sales figures over four years, Mr Mostyn was asked to take a pay cut from £45,000 to £25,000. He alleged that his employer was trying to remove him by the cheapest means possible and that this was so severe and underhand as to allow him to consider his contract breached. His employer treated this as a grievance but rejected it and subsequently confirmed it would be imposing the pay cut. Mr Mostyn resigned and brought a claim of constructive dismissal, primarily based on a breach of the implied term of mutual trust and confidence.

A tribunal rejected his claim. While his employer’s actions, viewed objectively, were likely to destroy or seriously damage the relationship of trust and confidence, it nevertheless had reasonable and proper cause for its actions (due to his dwindling sales figures). Even if Mr Mostyn had been constructively dismissed, the tribunal held that it would have been fair by reason of capability and within the range of reasonable responses open to the employer. Mr Mostyn appealed.

EAT decision

His appeal was allowed.

The tribunal’s finding that the employer had ‘reasonable and proper cause’ to impose the pay cut was incorrect. No question of reasonableness could arise where the conduct of the employer amounted to a breach of the implied term of trust and confidence and also a breach of an express term in relation to pay. There could be no doubt that such a breach was repudiatory. Mr Mostyn had been constructively and wrongfully dismissed.

There was, said the EAT, a ‘real danger’ if tribunals were to consider whether an employer has reasonable and proper cause for conduct which amounts to a repudiatory breach of contract. The EAT noted that the tribunal had appeared to confuse the reasonable and proper cause test and the band of reasonable responses test for unfair dismissal.

As to whether Mr Mostyn’s dismissal was fair or not, the EAT said that the tribunal had been wrongly influenced by its decision in relation to the reasonable and proper cause test and had not properly addressed the question of whether the employer had acted reasonably in treating Mr Mostyn’s capability as sufficient reason for dismissal. This question was sent back for reconsideration by another tribunal.

Link to judgment: http://www.bailii.org/uk/cases/UKEAT/2018/0158_17_2202.html

Comment

The tribunals have been fairly consistent over the years in concluding that unilaterally reducing an employee’s pay is a fundamental breach of contract. When sales people are not performing against target then this is often the easiest capability process to undertake, although this could be made more difficult by employee grievances and/or time off sick.