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Establishing a contractual right
Employees are only entitled to enhanced redundancy pay if they can point to a contractual right, either written expressly in the employment contract, or incorporated into the contract.
Incorporation can either be express (where the contract refers clearly to a specific collective agreement or handbook setting out what is to be paid on a redundancy), or implied (through conduct or custom and practice, based on the repeated practice of making redundancy payments over time). If the contract refers expressly to the document containing the redundancy terms (for example, if the contract says: “Your redundancy entitlement is as set out in Section 3 of the collective agreement”), the collective agreement will have been incorporated and there will be a contractual right to redundancy pay on the agreed basis. In practice, the position is often unclear.
Even if a collective agreement is identified clearly in the employment contract, that is not the end of the matter. To be incorporated as a contract term, it must be “apt for incorporation”. In other words, it must be capable of being a legally enforceable obligation owed to an individual. Promises about individual benefits like pay or redundancy pay, notice pay, pensions and so on are much more likely to be viewed as “apt for incorporation” than collectively negotiated procedural rules affecting groups of employees, for example redundancy procedures. Employees have lost out on negotiated rights over this.
For example:
MG Rover employee Kulvinder Kaur was threatened with compulsory redundancy, but claimed this was unlawful under the terms of her contract because of the provisions of two collective agreements. One stated: “Employees who want to work for Rover will be able to stay with Rover. Necessary reductions in manpower will be achieved in future, with the co-operation of all employees, through retraining and redeployment, natural wastage, voluntary severance and early retirement programmes.” The second collective agreement promised: “There will be no compulsory redundancy.”
But although the agreements appeared unequivocal, the Court of Appeal held that they were not legally binding. Some provisions are not intended to give rise to legally enforceable contractual rights, it said. Even if the collective agreement is expressly incorporated into the employment contract, it is still necessary to look at the content and character of the relevant term to work out the contractual intention of the parties. The court concluded that the wording of this agreement was “aspirational” and was not intended to amend the individual contracts of employment of staff within the bargaining unit.
Kaur v MG Rover [2004] EWCA Civ 1507
More helpfully, in Allen v TRW Systems [2013] UKEAT 2013/0083, the EAT said an enhanced redundancy package is especially likely to be apt for incorporation into an employment contract because it has become a widely accepted feature of the remuneration package. The EAT warned tribunals to be especially wary of employers who argue that payments intended as part of the remuneration package, once promised and communicated to employees, are merely matters of policy and discretion. In the following case, a promise to pay enhanced redundancy pay contained in a staff handbook was treated as legally binding even though no details were provided as to how the payment was to be calculated:
Christopher Keeley had a written statement of employment terms, which set out his main terms of employment and referred him to company handbooks for further information. The staff handbook stated: “Employees with two or more years’ continuous service are entitled to receive an enhanced redundancy payment.” The Court of Appeal held that if a written term is “put in clear terms of entitlement”, it is capable of being part of the contract, even if other terms in the same document are not. It also pointed out that, since a redundancy entitlement is an important part of an employee’s remuneration package, this statement was particularly apt for incorporation. It held that Keeley was entitled to an enhanced redundancy payment, and rejected the employer’s argument that the term was too uncertain to form part of the contract because it did not say how the redundancy pay was to be calculated.
Keeley v Fosroc International Ltd [2006] EWCA Civ 1277
In 2013, the EAT followed the Keeley case:
In 1999, TRW Systems, a manufacturer of engine valves, reached an agreement with its Joint Works Council to make enhanced redundancy payments. The policy was later recorded in the staff handbook using the precise language of entitlement. However, the statement of the main terms and conditions of employment did not refer to the redundancy policy, and staff were asked to sign the statement to confirm that it “accurately represents the terms of the contract of employment”.
The EAT said that the enhanced redundancy policy had become a contract term. It did not matter that the policy was referred to only in the handbook and not in the statutory statement of employment terms. What mattered was that the policy used clear language about promise and individual entitlement, and so was “apt” for incorporation into the employment contract. A statement of employment terms is supposed to include the main terms of the contract, but it does not have to include the whole contract and often does not.
Allen v TRW Systems [2013] UKEAT/13/0083/12