Can employers reduce sick pay pending a disciplinary?

In light of a recent tribunal, Avril England explores whether sick pay reduction pending disciplinary is a fundamental breach of contract

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An employee may resign and bring a claim that they have been constructively dismissed only where there has been a fundamental breach of contract which has led to their resignation. In some instances, the seriousness of the breach has been referred to as conduct by the employer showing that they no longer intend for the employment relationship to continue.

In Singh v Metroline West Limited the issue was whether there had been a fundamental breach in circumstances where it could not be said that the breach showed the employer no longer wished to continue with the employment relationship.

The circumstances surrounding the case will be familiar to employers. The day after being told that he would need to attend a disciplinary hearing Mr Singh reported that he was going to be absent due to sickness. He remained absent for seven weeks.

There was a contractual power to suspend an employee without pay or to limit payment to statutory sick pay where after an investigation it was found that the absence was not genuine. During his absence he was examined by occupational health. 

The employer believed he was just trying to avoid the disciplinary hearing. However, the occupational health report did not suggest his sickness was not genuine. Despite this the employer made the decision to pay only statutory sick pay instead of company sick pay. 

Singh resigned and claimed that one of the reasons was the employer’s failure to pay the contractual sick pay he considered was due to him.

It was held that under the relevant contractual terms, the failure to pay contractual sick pay was a breach of contract. However, an employment judge held it was not a fundamental breach which could give grounds for a claim of constructive dismissal. 

Central to this conclusion was that by withholding pay, the employer had not indicated an intention not to be bound by the employment relationship or the terms of the contract. In fact, it showed the opposite as the reason behind the withholding of his pay was to encourage Singh to participate in the disciplinary process which was part and parcel of the employment relationship.

Singh's appeal against the findings from the employment tribunal on this point succeeded. 

The Employment Appeal Tribunal held that it was not always necessary that for a breach of contract to be fundamental there must have been an intention by the employer that it no longer wished to continue with the employment relationship. 

For the purposes of establishing whether there had been a fundamental breach what was required was that the employer demonstrated an intention to no longer comply with the terms of the contract that was so serious that it went to the root of the contract. 

In this case, there was a deliberate decision to withhold pay to which Singh was entitled, resulting in a significant reduction in earnings. This was a fundamental breach.

Key points

It is highlighted in the decision that there might be many circumstances in which an employer would like to reduce pay by a significant degree but still wishes the employee to remain in employment, receiving the lower rate of salary. If the employer unilaterally reduces pay that is still a fundamental breach of contract.

In practice where there is a unilateral reduction in pay it will usually be regarded as a fundamental breach in circumstances where there is no contractual right to make the change. Terms relating to pay are unsurprisingly regarded as being central to the employment relationship.

Avril England is an employment partner at Gateley Legal