Proving a contractual right to redundancy pay


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


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


• implied – based on “custom and practice”.



Like any other contract term, the right to contractual redundancy pay will transfer under TUPE (Lansing Linde Severnside v Spiers [2002] UK EAT/1490/01). The protection of collectively agreed contract terms has become more complicated following changes to TUPE by the last government (see Chapter 12). In case of doubt, advice from trade union solicitors should be sought as early as possible. 



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 86 of 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 the practice to have become a binding contractual obligation. 



As always, every case depends on its particular facts. In Park Cakes Limited v Shumba [2013] EWCA Civ 934, the Court of Appeal explained some of the factors that may help to support an argument that a practice of paying enhanced redundancy pay has become a binding contractual obligation through custom and practice. These include: 



• evidence that the employer regularly publicised the availability of enhanced redundancy pay to the workforce, either directly or through a union, without qualification;



• 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” points in the opposite direction.



A promise to pay enhanced redundancy payments cannot be implied, whether by custom or otherwise, if it is inconsistent with the express (in other words, clearly agreed) contract terms. 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, ruled the EAT, created a contractual obligation based on custom and practice to pay redundancy on this basis, which bound the employer’s successor after 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. Specifically, 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.” 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, ruled the Court of Appeal. The court went on to comment that redundancy pay is an important part of the remuneration package, making the employer's statement particularly “apt for incorporation” into the employment contract. Keeley was followed in this case:


In Allen, echoing Keeley, 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, and 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. An employer that wants to change binding contractual terms must do so by agreement:


Contract terms should only be changed by agreement (which, where a union is recognised, should be through collective bargaining). 



If payments are “discretionary”, meaning that the employer is genuinely free to decide whether or not 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. The deadline for a claim for contractual redundancy pay in the employment tribunal is three months from the dismissal date. Deadlines are rarely extended.



Acas EC applies. See Chapter 13 for information about Acas EC and about bringing a claim in the employment tribunal.