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 or employer communication, for example published on the intranet, handbook, or in a collective agreement); or




• implied, based on “custom and practice” (see Chapter 3, page 79).





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 states clearly 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, the practice of paying enhanced redundancy must be reasonable, widely known in the workforce and clear (Devonald v Rosser & Sons [1906] (2) KB 728). See page 80, Chapter 3. 


Evidence of regular payments of enhanced redundancy pay over a long time is important, but 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 on this basis. 





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.





For example, in Lynam v Birmingham City Council [2018] UKEAT/0072/17/JOJ, the EAT ruled that a council’s offer, published on its intranet, inviting all affected employees to apply for enhanced voluntary redundancy created binding contractual obligations because the council’s chosen language conveyed a clear message that it intended to be bound. 








In Peacock Stores v Peregrine [2014] UKEAT 0315/13/2503, the employer always calculated redundancy pay without applying the statutory cap on either wages or length of service, for more than twenty years. This behaviour, ruled the EAT, created a contractual obligation based on custom and practice to pay redundancy on this basis. It 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 (CA) 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 CA went on to describe redundancy pay as an important part of the remuneration package, making the employer's promise particularly “apt for incorporation” into Keeley’s 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. In this case, the EAT added that tribunals should be 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 enhanced redundancy pay just because it has become very expensive to fulfil (see, for example, Arkley v Sea Fish Industry Authority [2010]UKEAT/0505/09/JOJ). Changes to a binding agreement can only be made by agreement. Where a union is recognised, any changes should be negotiated through collective bargaining. 





If payments are genuinely discretionary, so 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 or not to make an enhanced payment. 





A decision whether to exercise discretion must not be irrational or perverse (Commerzbank v Keen [2007] IRLR 132 CA) and must not involve discrimination or victimisation. 




An employer cannot avoid paying contractual redundancy pay by deliberately choosing to dismiss their 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 time limit of three months (less one day) (see Chapter 10, page 365 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. Claims for contractual redundancy pay can also be brought in the civil courts.