![[Basket]](images/basket.png){kind=small}
Your order![[cover image]](images/issue/BK201305.jpg)
Establishing a contractual right to a redundancy payment
Unless an enhanced redundancy scheme is expressly stated to be contractual, it is likely to be difficult to establish a contractual entitlement. In Albion Automotive v Walker ([2001] UKEAT 415/00/1210), the EAT listed the sorts of criteria that should be present for a scheme to be contractually binding on the employer:
• the terms should have been drawn to the employees’ attention and be well-known;
• the terms should have been followed for a substantial period of time;
• the terms should have been followed on a number of occasions;
• payments should have been made more or less automatically;
• when communicating with staff, management should have used language indicating they intend to be bound;
• the scheme was adopted by agreement with workplace representatives;
• its terms were incorporated into a written agreement;
• employees had developed a reasonable expectation that the scheme would apply to them.
If a policy clearly uses the language of entitlement to explain redundancy payment terms, whether in a contract or some other document, the employer must make the promised redundancy payments. For example:
Christopher Keeley had a written statement of employment terms setting out his main terms of employment but it was silent as to redundancy. However, the statement referred to a company handbook where staff could obtain further information. The handbook included a section headed “Employee benefits and rights”, which contained the redundancy policy and stated: “Employees with two or more years’ continuous service are entitled to receive an enhanced redundancy payment.” Even though the whole handbook was not contractual, the Court of Appeal held that a written term expressed “in clear terms of entitlement” can be part of the contract, even if other terms in the same document are not. The Court said that a redundancy entitlement is an important part of an employee’s remuneration package, and this made the statement particularly “apt for incorporation”. It was a contractual entitlement and Keeley was entitled to enhanced redundancy pay.
Keeley v Fosroc International Ltd ([2006] EWCA Civ 1277)
In 2013, the EAT upheld the Keeley case, in the following decision:
In 1999, TRW Systems, a manufacturer of engine valves, reached an agreement with its Joint Works Council for enhanced redundancy payments. The policy was later recorded in the staff handbook using precise language of entitlement and promise. However, the statement of the main terms and conditions of employment contained no reference to the redundancy policy, and staff were required to sign their statement of terms to confirm that it “accurately represents the terms of the contract of employment”.
The EAT said that in this case, 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 entitlement, so that the wording was “apt” for incorporation into the employment contract (see Chapter 3: Starting work and 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. Only if the parties expressly agree that a document is to be the sole source of the employment contract will the tribunal only look at that document and nothing else. This would be unusual, and rarely happens except in senior executive contracts.
The EAT added that an enhanced redundancy package is especially likely to be apt for incorporation into an individual’s contract of employment because it has become a widely accepted feature of an employee’s 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.
Allen v TRW Systems ([2013] UKEAT/13/0083/12)
Arkley v Sea Fish Industry Authority ([2010] UKEAT/0505/09/101) is another case where the employer was held to its bargain. Here, the Sea Fish Authority tried to avoid paying out under a contractual redundancy policy because a change to pensions legislation meant that the redundancy package became extremely expensive. Nevertheless, the language of the policy was clear. It was written in obligatory not discretionary language, stating, for example,: “Compensation in accordance with the scheme will be payable”. The employer was contractually obliged to make the payment.
In Kaur v MG Rover ([2005] IRLR 40), the Court of Appeal held that a collective agreement containing a “no compulsory redundancy” clause did not make an employee’s redundancy unfair. It found that the clause was “aspirational” only and was not a contractual entitlement. As a general rule, redundancy selection procedures are far less likely to be contractually enforceable than policies on enhanced redundancy payment terms.
In Pellowe v Pendragon PLC ([1999] UKEAT 804/98/0106), the practice of paying enhanced redundancy was always followed, without individual decision or discretion, for more than ten years and more than 100 redundancies. It might have been in force for at least 20 to 25 years. Even so, the EAT refused to overturn a tribunal’s conclusion that there was no implied term to pay enhanced redundancy, especially as this was a management policy that was not communicated to employees.
If payments are discretionary, so that the employer is free to decide whether or not to make them, there will be no custom and practice. For example in Quinn v Calder Industrial Materials [1996] IRLR 126, the fact that the employer had previously paid enhanced redundancy but never included it as a contractual term meant that there was no custom and practice for later redundancy rounds, because on each occasion, management met to decide whether to make the enhanced payment.
When deciding whether or not to exercise discretion to pay enhanced redundancy, management decisions must not be “irrational or perverse” (Commerzbank v Keen [2007] IRLR 132 CA).
Employers cannot avoid paying contractual redundancy pay by deliberately choosing to dismiss an employee for another reason:
Mr Jenvey was dismissed for asserting his statutory right to a written statement of his terms after his employer tried to reduce his hours. His employer argued that because it had dismissed him for another (albeit unfair) reason, he had no right to redundancy pay. The High Court rejected the argument. It held that if an employer was intending to dismiss for redundancy (which it found it was in this case), and there is a redundancy situation, it cannot dismiss for another reason without very good cause. It suggested the only likely permissible cause would be gross misconduct.
Jenvey v Australian Broadcasting Corp ([2002] IRLR 520)