28 March 2014 #Employment
When does the enhancement of statutory redundancy pay become a custom and practice conferring a contractual right on employees to enhanced redundancy pay? An example of a consistent practice of an employer calculating redundancy payments without the statutory caps is found in the recent case of Peacock Stores v Peregrine, where the employer was found to be bound by an implied contractual right.
Peacocks had between the early 1980s and 2002 routinely paid redundancy pay to staff in accordance with the statutory redundancy scheme, except for the statutory caps relating to length of service (20 years) and the amount of weekly pay being disapplied. There was some evidence (though generalised) as to the position between 2002 and 2006. The employment judge held that there was a contractual term that redundancy payments would be made without either cap.
The evidence as to the position between 2006 and 2012 (when the redundancies giving rise to the claims arose) was not so clear cut, and so it was argued, unsuccessfully, that there was an inconsistency of practice. It was found and upheld on appeal that by 2002 the practice had become contractual in nature. Nothing since then showed that that term had lawfully been varied.
The burden of proof fell on the claimants to show that there was a contractual entitlement to the uncapped payments, which was a question of fact. The claimants were helped greatly by the evidence of the former head of HR, who himself was made redundant in 2002. He said that that calculation of redundancy payment in the above manner was ""most definitely custom and practice".
Once the position was reached that a contractual right to an uncapped redundancy payment was to be implied by custom and practice, a departure from that term by the employer would represent a breach.
Where a number of employees are made redundant the costs of redundancy can become prohibitive where it is not appreciated that there may be a hidden contractual liability for enhanced pay. In the Peacocks case, the employees in question had 27,26 and 14 years service respectively.
Employers are advised to have clearly set out express redundancy terms in a redundancy policy to avoid being caught by arguments over custom and practice and what may have happened in the past and to clearly communicate that policy. Consideration may also have to be given to getting employees to agree to new redundancy terms where a prior custom or practice may have been in place for some time.