Can you sack someone in order to avoid paying them the National Minimum Wage? Perhaps unsurprisingly, the answer is a straightforward “no”.

Suppose that I employ a number of individuals, all of whom are entitled to receive the National Minimum Wage.

Business has been hard during the pandemic, and so I want to make costs savings. Staff costs are some of my largest overheads. I could make significant savings by simply dismissing all of my (National Minimum Wage-entitled) staff, and replacing them with workers on non-domestic contracts, working for a substantially lower wage. I might tell my staff that they have been made redundant.

Suppose, also, that I choose summarily to dismiss my staff. Those staff will be understandably aggrieved, and I would expect them to bring claims of unfair dismissal in the Employment Tribunals. Laypeople as well as lawyers are familiar with the concept of “ordinary” unfair dismissal. Clearly, if I don’t follow any procedure, then the dismissal will be procedurally unfair. But then I can argue that, if I had gone through a fair procedure, I would have dismissed those employees in any event (perhaps after a twelve-week consultation process) – so that’s the limit of my liability. That’s the principle established in Polkey v A E Dayton Services Limited [1988] 1 AC 344. I might also have to argue about whether the dismissal is substantively fair – i.e. whether it’s a decision which a reasonable employer could have taken – but I might think I’m on firmer ground with that argument. After all, employers are entitled to make cost-saving decisions (within reason), and the Tribunals will be slow to interfere with what are, fundamentally, exercises of commercial judgement.

But there are some parts of the Employment Rights Act 1996 which are often overlooked, and in this case s 104A(1) Employment Rights Act 1996 is directly relevant. That section provides, insofar as is material, as follows:

104A The national minimum wage.

(1) An employee who is dismissed shall be regarded for the purposes of this Part as unfairly dismissed if the reason (or, if more than one, the principal reason) for the dismissal is that—

[. . .]

(c) the employee qualifies, or will or might qualify, for the national minimum wage or for a particular rate of national minimum wage.

That by itself won’t be enough, because the principal reason for the dismissal might still be “redundancy” (which is a potentially fair reason for the purposes of s 98(2) of the 1996 Act). Whoever drafted the 1996 Act realised this point, and so we have s 105 Employment Rights Act 1996 which provides, insofar as is material, as follows:

105 Redundancy.

(1) An employee who is dismissed shall be regarded for the purposes of this Part as unfairly dismissed if—

(a) the reason (or, if more than one, the principal reason) for the dismissal is that the employee was redundant,

(b) it is shown that the circumstances constituting the redundancy applied equally to one or more other employees in the same undertaking who held positions similar to that held by the employee and who have not been dismissed by the employer, and

(c) it is shown that any of subsections (2A) to (7N) applies.

[. . .]

(7A)This subsection applies if the reason (or, if more than one, the principal reason) for which the employee was selected for dismissal was one of those specified in subsection (1) of section 104A (read with subsection (2) of that section).

That, then, gives the answer. If the reason why I have selected an employee for redundancy is that the employee qualifies for the national minimum wage, then the resulting dismissal will be automatically unfair, even if the reason for the dismissal is still “redundancy”.

Note, however, that this is a case of automatically unfair dismissal which is still subject to the statutory cap on compensation: currently the lower of £89,493 and a year’s gross pay.

We hope you enjoyed this article, if you have queries relating to the issues raised or for further information on our Employment Team please contact our clerks via our switchboard on 020 7353 0711 or email: clerks@pumpcourtchambers.com