Constructive Dismissal: Substantial pay reduction cannot amount to a ‘reasonable or proper’ cause

Published on: 10/05/2018


An employee can be unfairly dismissed if they resign as a result of an employer’s repudiatory breach, known as ‘constructive dismissal’.  A breach commonly relied by claimants is a breach of the implied term of trust and confidence.

This term places an obligation on the employer not to, without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.

This point on ‘reasonable and proper cause’ came up recently in the case of Mostyn v S and P Casuals Ltd, where the EAT held that threatening to impose a significant pay cut could not amount to ‘a reasonable and proper cause’ and was in breach of both express and implied terms of the contract.

In Mostyn the Claimant worked for the Respondent as a sales executive. Following a decline in his sales figures he was asked to accept a significant basic salary cut (of £45,000 to £25,000). The Claimant complained following this and his complaint was treated as a grievance, which was not upheld. The Respondent then confirmed it would be imposing the pay cut. Following the grievance being rejected and being notified the pay cut was going ahead, the Claimant resigned and claimed constructive dismissal.

The EAT, overturning the ET decision, held that the salary cut was a breach of both the express term of his contract relating to salary payment and the implied term of trust and confidence. When deciding whether the breach was repudiatory, the EAT held the question was not dependent on whether it is fair to change the terms of the contract, but on whether the contract was broken in a sufficiently serious way.

The case has been remitted to another ET to decide whether the dismissal was unfair, but is important to note for employers who may be considering adversely varying salary terms.


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