Constructive dismissal: pay cut entitled employee to bring claim

The Employment Appeal Tribunal (EAT) recently considered the implications of an employer enforcing a drastic pay cut on an employee.

Background

Commonly, an employee’s constructive dismissal claim will be based on a breach of implied term of mutual trust and confidence. This occurs where an employer has acted in such a way as to damage the trust and confidence between them and their employee, without reasonable and proper cause.

Facts of the case

In Mostyn v S and P Casuals Ltd, Mr Mostyn was asked to take a pay cut from £45,000 to £25,000. After making a formal complaint to his employer, which was rejected, Mr Mostyn resigned and brought a claim of constructive dismissal. He was unsuccessful at employment tribunal, he appealed.

At the appeal, the EAT ruled that, when it comes to unilaterally imposing a significant pay cut, no employer can have reasonable and proper cause for breaching the implied term of mutual trust and confidence in this way.

As it happened, not only was the pay cut a breach of the implied term, it was also a breach of an express term in Mr Mostyn’s contract that covered salary payment. The EAT therefore found that there had been a clear breach of contract entitling him to resign and claim constructive dismissal.

Comment

This decision has ramifications for both employers and employees. While this was an extreme example, the EAT’s ruling makes it clear that reducing pay is always likely to be a breach of the implied term of trust and confidence.

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