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Can policies in employment handbooks be contractual?

08 February 2013 #Employment

Another recent case has dealt with the question of whether a redundancy policy can be contractual (see blog about the NHS Trust this week).

In Allen v TRW Systems Limited the Claimants had been employed by TRW Systems Limited (“TRW”) at a factory producing engine valves.  In 1999 TRW agreed a policy with its works council for enhanced redundancy payments.  The agreement was subsequently added to the employee handbook and repeated in letters to the workforce on a number of occasions thereafter. In 2010, TRW closed a plant, but failed to honour the redundancy policy.  The Employment Tribunal (“ET”) held that the redundancy policy was not incorporated into the employee’s employment contract so there was no requirement to pay the enhanced redundancy pay.  The ET was persuaded by the fact the redundancy policy was not referred to in the written statement of terms.

The Employment Appeal Tribunal overturned the ET’s decision.  The EAT considered that the fundamental question was whether the circumstances in which the enhanced redundancy package was known supported the inference that the employers intended to become contractually bound by it.  The EAT found that the ET was wrong in this case to ignore the works council agreement, the express promise in the employee handbook, and the subsequent repeated promises in correspondence, in determining whether the enhanced redundancy payments had been incorporated into the contract of employment. The matter was accordingly remitted for reconsideration by a freshly constituted ET.

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