Back in 2008 our business was struggling and we had to cut everyone’s pay by 10% to avoid making redundancies. This was quite a painful process but in the end most staff accepted it. Unfortunately, it now looks like we are going to have to do the same again as the past six months have been particularly bad for us as customer orders have plummeted as a result of the crisis in the Eurozone. We would still rather cut pay than make redundancies. To complicate matters, six months ago we acquired another business under a TUPE transfer. I know there have been some cases over the last year or so about changing terms and conditions of employment but I am not sure how they have affected what we intend to do. Please can you give the low down so I am up to date for when we do this in the spring?
A lot of people are asking us about how to change terms and conditions of employment and, in particular, how to reduce basic salaries and bonuses. Your business is certainly not alone. You are right that there have been some important decisions over the past year. Generally these have been quite pro-employer in their outcomes, though often these have turned on the particular facts.
Changing terms and conditions generally
One helpful point which the Employment Appeal Tribunal (EAT) confirmed last year in the case of Garside and Laycock v Booth is that the change the employer makes does not have to be crucial to the survival of the business. The EAT explained that when tribunals decide cases about changing terms and conditions their focus should be on the reasonableness of the employer’s decision, not the reasonableness of employee’s actions or refusal to accept it. It also made some helpful comments about what should be taken into account when considering “reasonableness”, stressing that this should be determined “in accordance with equity” (as required by the Employment Rights Act 1996). It indicated that factors such as whether management had also taken a pay cut and the process which had been followed may well be relevant. In our view, taking time to consult with your staff and perhaps putting the proposal to a vote of staff may well help you should you end up needing to persuade a tribunal that your actions were reasonable. The fact that you will apply the cut to everyone should also help.
Changes terms and conditions following a TUPE transfer
You mentioned that you had recently acquired a business under TUPE. As you clearly appreciate, it can be difficult to change terms and conditions after a TUPE transfer. However, there have been a couple of helpful cases which have underlined the fact that where changes have nothing to do with a TUPE transfer, then TUPE will not prevent them.
In one case, EMS v Dance, after a TUPE transfer the company tried to implement a performance related pay arrangement for its newly-acquired employees which was the same as it had implemented for its pre-existing employees prior to the transfer. The EAT decided that company’s objective had been to increase productivity and that this had had the unlooked-for consequence of harmonisation; harmonisation itself wasn’t the objective. As the changes were not related to the TUPE transfer, they were not prohibited under the TUPE Regulations. Similarly, in Smith v Trustees of Booklands College the EAT held that the key question is “what was the reason for the change?”. If the answer is something unconnected with the transfer, then the TUPE will not render the changes void. It seems to us that in your situation you don’t want to cut pay because of the TUPE transfer, but as a result of fewer orders from clients and so the fact of the TUPE transfer should not prevent you from doing this.