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Can pay protection amount to a reasonable adjustment?

If you had asked most employment lawyers a month ago whether you were required to maintain a disabled employee’s rate of pay following a change in role as a result of making reasonable adjustments, the answer would (in most cases) have been ‘no’.  It has long been standard practice that, if changes were made which would ordinarily result in a lower rate of pay for the role in question, the employee would receive the rate of pay applicable to that role.  However, the Employment Appeal Tribunal has recently confirmed in the case of G4S Cash Solutions UK Limited v Powell that maintaining a disabled employee’s pay at a higher rate following a change in role can amount to a reasonable adjustment.

In this case, Mr Powell was originally employed as a skilled engineer, maintaining the Respondent’s ATMs.  However, as a result of a worsening of the Claimant’s back problems, he was eventually no longer able to carry out the duties associated with this role.  He was instead offered work in a new role as a ‘key runner’ - initially on a temporary basis as the Respondent had not decided whether to make this a permanent position.  For a period of around one year, the Respondent maintained the Claimant’s salary at the rate applicable to an engineer.  However, once the Respondent decided to make the role of key runner a permanent position, the Respondent informed the Claimant that if he wanted that role on a permanent basis, he would have to accept the salary applicable to the permanent position.

The Claimant refused to accept the lower salary (approximately 10% lower than the engineer salary) and was eventually dismissed.  The Claimant claimed that the failure to allow him to remain in the key runner role, whilst maintaining the engineer’s salary, amounted to a failure to make reasonable adjustments.  The Employment Tribunal and the Employment Appeal Tribunal agreed. 

The EAT held that there was no reason why some form of pay protection could not be considered a reasonable adjustment, and noted that in this case, the Respondent had in fact maintained his pay at the higher rate for a year, and had not given any explanations as to why this could not continue.  Whilst this may not be required in all cases, in appropriate circumstances it could well amount to a reasonable adjustment which employers will be expected to make.

The Judge at the EAT said:

I do not expect that it will be an everyday event for an Employment Tribunal to conclude that an employer is required to make up an employee’s pay long-term to any significant extent - but I can envisage cases where this may be a reasonable adjustment for an employer to have to make as part of a package of reasonable adjustments to get an employee back to work or keep an employee in work.  They will be single claims turning on their own facts.  The financial considerations will always have to be weighed in the balance by the Employment Tribunal.  

It is therefore important in all cases where you are making reasonable adjustments to consider carefully whether it is appropriate to reduce a disabled employee’s pay in line with any changes made.  If you do want to reduce pay, you will need to ensure that you are able to show some justification – with evidence where appropriate – as to why it would not be a reasonable adjustment in the circumstances of the particular case to maintain the higher level of pay.  

It is also worth noting that, just because you maintain pay at a higher rate at the outset, this does not mean that you will never be able to reduce that pay.  The EAT made clear that if circumstances change, what was once reasonable may no longer be considered reasonable in the future:

I make it clear, also, that in changed circumstances what was a reasonable adjustment may at some time in the future cease to be an adjustment which it is reasonable for the employer to have to make; the need for a job may disappear or the economic circumstances of a business may alter. 

If you are considering reducing pay as a result of a change in role due to reasonable adjustments, or if you have maintained pay in the past and would now like to reduce that pay as a result of a change in economic circumstances, we would strongly recommend taking advice.

Proposed changes to taxation of Termination Payments

HMRC has published draft legislation which, if passed, will change the rules surrounding the taxation of termination payments from April 2018. The main changes include:

  1.     making all payments in lieu of notice taxable, even if the contract does not contain a pay in lieu of notice clause
  2.     requiring the payment of employer NICs on all payments over £30k
  3.     making all payments for injury to feelings subject to tax

Whilst this will remove some of the current uncertainty which can arise when considering whether termination payments are taxable, it will of course potentially make it harder – and more costly – to reach agreements with employees for termination.  However, it seems likely that this will be passed, and we will keep you up to date as this progresses.

For further information please contact our employment team on 0113 220 6270.

About the Author

Gemma Sherbourne

Legal Director

Gemma is an experienced employment lawyer, providing advice for a variety of clients from senior executives…

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