Proving a contractual right to redundancy pay



Employees are only entitled to contractual redundancy pay exceeding statutory redundancy pay if they can point to a contractual right. That right will either be:



• express (written in the statement of employment particulars or incorporated into the contract from some other source, such as an offer letter, handbook, redundancy policy or collective agreement); or



• implied, based on “custom and practice” (see Chapter 3, page 75)




Like any other contract term, the right to enhanced contractual redundancy pay transfers under TUPE (Lansing Linde Severnside v Spiers [2002] UK EAT/1490/01), see Chapter 12.


Unless the contract documentation clearly states that enhanced redundancy pay is a contractual right, it can be very difficult to establish a contractual entitlement. For a term to be implied based on custom and practice, that practice must be reasonable, widely known in the workforce and clear. (Devonald v Rosser & Sons [1906] (2) KB 728). For more information on implying terms based on “custom and practice”, see page 75, Chapter 3. 




Although evidence of regular payments of enhanced redundancy pay over a long time is important, on its own it is not enough to establish a contractual right. Instead, the parties’ behaviour must strongly suggest to an informed onlooker that they intended to create a binding contractual obligation to pay enhanced redundancy. 




As always, every case depends on its own facts. In Park Cakes Limited v Shumba [2013] EWCA Civ. 934, the Court of Appeal explained some of the important factors to consider, including: 




• evidence that the employer regularly publicised the availability of enhanced redundancy pay to the workforce, either directly or through a union;
and


• choice of language. Words linked to “entitlement”, such as “shall” or “must”, suggest a contractual obligation to pay, whereas “discretionary” language such as “should”, “ex-gratia” or “policy” suggests the opposite.




If the employer’s behaviour can be explained just as easily as an exercise of discretion, a tribunal will not normally find an implied obligation to pay based on custom and practice. 




In Peacock Stores v Peregrine [2014] UKEAT 0315/13/2503, for more than two decades the employer always calculated redundancy pay without applying the statutory cap on either wages or length of service. This behaviour ruled the EAT, created a contractual obligation based on custom and practice to pay redundancy on this basis, which bound the employer’s successor following a TUPE transfer.




In Keeley v Fosroc International Ltd [2006] EWCA Civ. 1277, Mr Keeley’s employment contract referred to a staff handbook that included a clear promise to pay redundancy pay, but with no information as to how it was to be calculated. In a section headed “Employee benefits and rights”, the handbook stated: “Employees with two or more years’ continuous service are entitled to receive an enhanced redundancy payment.” The Court of Appeal ruled that this clear wording created a binding contractual right to redundancy pay, even though the handbook was silent as to how it was to be calculated. The court went on to describe redundancy pay as an important part of the remuneration package, making the employer's promise in this case particularly “apt for incorporation” into the employment contract. 


Keeley was followed in Allen v TRW Systems [2013] UKEAT/0083/12, when the EAT commented that an enhanced redundancy package is especially likely to be apt for incorporation into the contract of employment because it has become a widely accepted feature of an employee’s remuneration package, adding that tribunals should 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. 




An employer cannot escape a contractually binding obligation to pay redundancy pay just because it has become very expensive to fulfil (for example because of changes to pension law). An employer that wants to change binding contractual terms can only do so by agreement (see, for example, Arkley v Sea Fish Industry Authority [2010] UKEAT/0505/09/JOJ).Where a union is recognised, any such agreement should be reached through collective bargaining. 




If payments are genuinely discretionary, meaning that the employer is genuinely free to decide whether to make them, there can be no obligation to pay based on custom and practice. For example, in Quinn v Calder Industrial Materials [1996] IRLR 126, even though an employer had previously paid enhanced redundancy, there was no custom and practice for later redundancy rounds, because there was evidence that on each occasion, management met to decide whether to make the enhanced payment. 




When deciding whether to exercise discretion to pay enhanced redundancy, management decisions must not be irrational or perverse (Commerzbank v Keen [2007] IRLR 132 CA) and they must not engage in discrimination or victimisation. 




Employers cannot avoid paying contractual redundancy pay by deliberately choosing to dismiss an employee for another reason (Jenvey v Australian Broadcasting Corp [2002] IRLR 520).




The time limit for a claim for statutory redundancy pay is six months from the date of dismissal. However, if an individual wants to claim unfair dismissal, the claim must be brought within the normal three-month time limit (see Chapter 10, page 349 for information on calculating the claim deadline). The deadline for a claim for contractual redundancy pay in the employment tribunal is three months (less one day) from the dismissal date. Deadlines are rarely extended. Acas Early Conciliation (EC) applies. See Chapter 14 for information about Acas EC and about bringing a claim.