Can an employer impose a pay cut on financial grounds?

A recent case in the Liverpool Employment Tribunals has highlighted the risk for employers in unilaterally imposing pay cuts on employees in response to a downturn in business.

Mr Decker was a branch manager for a recruitment agency, Extra Personnel Logistics, specialising in driver recruitment for the logistics industry in Merseyside. He commenced employment in December 2008. On commencing his employment he worked 40 hours a week flexibly between 7.00 a.m. and 7.00 p.m. Monday to Friday. In July 2015 it was agreed that his working hours would be reduced to 32 per week. It was also agreed that he would be released from on call duties, other than covering holidays and emergencies.

On 20 February 2017 he was asked by the managing director, Brad Richardson, to reduce his working days from four to two (32 to 16 hours), equating to a loss of £205.95 per week. The following day Mr Richardson wrote to him, confirming the reduction to Mondays and Tuesdays only. He gave the reasons as the loss of two contracts and the industry market being quiet. The letter also informed him that the consultation period for the contract would run until 6 March, following which a meeting would take place the following day. Mr Richardson also referred to an offer of six additional hours doing sales which, although it had been declined by Mr Decker, would remain open for discussion.

On 3 March Mr Decker wrote to Mr Richardson to inform him that, due to his financial circumstances, he could not afford any reduction in his existing working hours and that he was willing to discuss matters further at the meeting on 7 March.

At the meeting Mr Richardson said that, as a result of the resignation of Mr Decker’s daughter in law (who had also been offered a reduction in working hours), he could offer a further eight hours per week. However, that was subject to him resuming on call work. Mr Decker said that he would accept the reduction from 32 to 24 hours if his day rate was increased from £102.97 to £110.00, on the basis that this would assist the employer in achieving its cost-cutting objective.

No agreement was reached at the meeting.

The stakes are high when the wrongful dismissal claimant is the former boss of The AA

In June 2014, when The AA was taken public in what was described as a management buy-in, chartered accountant Bob McKenzie was appointed as its chief executive on a base salary of £750,000.

On 1 August 2017 he was sacked for gross misconduct after he was reported to have to have got into a hotel bar fight with one of the Company’s senior managers. He was reported to have engaged in “a sustained and violent attack” on the manager which was captured on the hotel’s CCTV. Days after the incident he was removed from the board. As a result of being dismissed for gross misconduct, thereby disqualifying himself from any further contractual benefits, he stood to lose what was estimated at the time to be about £100m in share awards. Following his dismissal Mr McKenzie admitted himself to hospital suffering from work related stress.

He was known as strong boardroom performer, driven by financial returns. In an interview with The Sunday Telegraph in 2016 he said of his employment prior to joining The AA:

“Work hard and play hard: you were given targets and you met them or else you parted company.”

Shortly following his appointment, chief executive Chris Jansen left abruptly, followed finance director Andy Boland. Mr McKenzie assumed the (much criticised) dual role of chairman and chief executive, assuming greater power in 2015 by absorbing the duties of executive director Nick Hewitt, architect of the business plan that led to the float, who also left abruptly.

Mr McKenzie instructed top City firm Bird and Bird and in January 2018 The AA declared that it was “astonished” that Mr McKenzie had commenced an unfair dismissal claim in the employment tribunal, with the intention of bringing a wrongful dismissal claim for “tens of millions of pounds” in the High Court.

Compensation for post-termination losses, even though lawfully expelled from partnership

The status of professional partners in the context of employment law has exercised the courts on many occasions. Are they employees, workers, or employers or, in some cases, none of the above. Is there a difference between self-employed salaried partners and employed salaried partners? From an employment perspective, probably not. Of course, the employment rights available vary from none to most, depending on which type of employment status (if any) applies.

The same issue arises in the case of members of an LLP (or limited liability partnership), who are often referred to as partners. One such member was a solicitor who worked for Wilsons Solicitors LLP and whose claim was recently considered by the Court of Appeal.

Mr Wilson became a member of the LLP in May 2008. He held the post of managing partner, as well as being the firm’s COLP (Compliance Officer for Legal Practice) and COFA (Compliance Officer for Finance and Administration).

In July 2014 the board of the LLP received a complaint of bullying made against the senior partner, Mr Nisbet. Mr Wilson investigated the complaint, reported his findings to the board and produced a report on 7 October 2014. On 21 October the board was supposed to meet to discuss the report. However, a majority of the members refused to attend the meeting. Instead, the following month, they demanded that Mr Wilson should resign. They then voted to remove him from his post. They also removed him from the posts of COLP and COFA before he was able to submit his report.

In January 2015 Mr Wilson wrote to the other members and claimed that they had repudiated the terms of the members’ agreement by their actions and he accepted the repudiatory breaches. He gave one month’s notice of his intention to leave the membership of the LLP on the basis that their actions had made continued membership intolerable.

“Overpromoted” practice manager constructively dismissed following bullying by “brusque and blunt” doctor

As I have pointed out over many years. pursuing a claim for constructive unfair dismissal can be a risky course of action because, for the former employee, it brings with it the added burden of having to demonstrate that the employer’s conduct was so unsatisfactory that it established a fundamental breach of a term of…

Can workers claim injury to feelings for a breach of the Working Time Regulations 1998?

This question was recently considered by The Employment Appeal Tribunal (EAT) in the case of Santos Gomes v Higher Level Care Ltd UKEAT/0017/16. The Facts The Claimant, Miss Santos Gomes was successful in proving that her employer, Higher Level Care Ltd, had failed in their duty to provide her with 20 minute rest breaks as…

Can a demotion amount to a breach of contract/constructive dismissal claim?

In the case of Gibbs v Leeds United Football Club Ltd [2016] EWHC 960 (QB) (28 April 2016) the matter in question concerned a contract of employment between the Claimant (Mr Gibbs) and the Respondent (Leeds United FC).   The question was whether the Claimant had been constructively dismissed due to a repudiatory breach of…

Summary dismissal following disclosure of confidential information

It is generally (and sensibly) thought that summary dismissal without notice should only occur in the most clear cut cases. In Farnan v Sunderland Athletic Football Club Limited the High Court considered the circumstances in which such action might be considered appropriate, as well as shedding light on the somewhat unappealing aspects of the football…