107: Employee was constructively dismissed where his employer threatened to impose a significant pay cut

An employee may claim constructive dismissal where they have resigned in response to a serious breach of an express or implied term of their contract of employment by their employer.

Often employees will rely on the implied term that the employer will not, without reasonable and proper cause, destroy or seriously damage the relationship of mutual trust and confidence between employer and employee. In the recent case of Mostyn v S and P Casuals Ltd, the Employment Appeal Tribunal (EAT) held that an employer can never have reasonable and proper cause for breaching the implied term of mutual trust and confidence where that breach consists of threatening to impose a significant pay cut on an employee.

Mr Mostyn worked as a salesman for S and P Casuals Ltd. Between 2012 and 2016, his sales figures fell dramatically. In February 2016 the company asked him to accept a cut in basic salary from £45,000 to £25,000. Mr Mostyn refused to accept this reduction and resigned, alleging that the company’s conduct was so serious that he considered his contract to have been breached. Mr Mostyn brought various claims in the Employment Tribunal, including a claim of constructive dismissal based on breach of the implied term of trust and confidence.

The Employment Tribunal dismissed Mr Mostyn’s claim, ruling that although the company had breached the implied term of trust and confidence by reducing his remuneration, it had reasonable and proper cause for doing so because of Mr Mostyn’s falling sales figures and his failure to take steps to improve them. Given that the company had reasonable and proper cause for its actions, there was no breach of the implied term of trust and confidence. This also meant that Mr Mostyn could not prove breach of an express contractual term. He had therefore not been constructively dismissed, and his wrongful dismissal claim failed.

The EAT disagreed with this reasoning, finding that the Tribunal had been wrong to ask whether the company had reasonable and proper cause for reducing Mr Mostyn’s pay. The EAT ruled that no employer can have reasonable and proper cause for breaching the implied term of mutual trust and confidence where that breach consists of the unilateral imposition of a significant pay cut. The threatened reduction in Mr Mostyn’s salary was a breach of this implied term, as well as a breach of the important express term relating to salary. Mr Mostyn had therefore been constructively and wrongfully dismissed.

This case illustrates the dangers in changing contracts of employment without the consent of employees, particularly where the changes relate to important contractual terms such as those relating to remuneration. As in this case, unilaterally imposing a significant pay cut on an employee will be a serious breach of contract allowing the employee to resign and claim constructive dismissal, regardless of whether the employer has reasonable and proper cause for the reduction.