Guidance as to when enhanced redundancy pay is contractual

The Court of Appeal issued some useful guidance as to when enhanced redundancy pay becomes a matter of contractual entitlement rather than just being payable at the employer’s discretion. In his judgment in the case of Park Cakes Ltd v Shumba & Ors [2013] EWCA Civ 974 on 31 July 2013, Lord Justice Underhill set out some useful non-exhaustive factors to consider:

• On how many occasions, and over how long a period, have the benefits in question been paid? For example, have the benefits been paid for so long and on so many occasions that the employee reasonably considers them to be being paid “as of right”?
• Are the benefits paid always the same? Variations in the amount or terms of payments to employees will be inconsistent due to uncertainty with the acknowledgment by an employer of a legal obligation. However it is possible that employers may bind themselves to a minimum level of payment even if more has been paid on different prior occasions on a discretionary basis.
• To what extent are the enhanced benefits publicised generally? The publication of enhanced payments to the workforce generally will usually show that there is an obligation to make payment. In certain circumstances, publication to a trade union or large group of employees may be taken as publication to the workforce as a whole.
• How are the terms described? Clear language that the payments are being made through an employer’s discretion, for example, use of the term “ex gratia” will be unlikely to create a contractual obligation. Alternatively, use of the term “entitlement” may reasonably suggest a legal obligation.
• What is stated in the express contract? A term cannot be implied into a contract that is inconsistent with the express terms of that contract, unless an intention to vary can be understood.
• Has the practice been pursued as a matter of discretion rather than legal obligation? If the decision being considered is not automatically made, it is more likely to be considered a discretionary benefit, rather than forming a contractual legal obligation.

The case relates to employees who had transferred under the TUPE Regulations from the Northern Foods Group. They were subsequently made redundant and claimed entitlement to enhanced redundancy payments based upon previous payment practice.

Northern Foods operated a formal redundancy scheme under which the claimed benefits were paid, over many years, whenever redundancies occurred. The claimants believed it reflected a contractual term of their employment while the employer’s case was that the scheme was operated as a matter of policy but was not a contractual entitlement.

The Court of Appeal found that the employee must have an expectation from the employer’s conduct that the claimed benefit(s) should be paid “as of right” and previous application of the scheme, for this purpose, should have been “without exception”.

In this case, it was relevant that the claimed benefits were part of a “composite package”. The judge felt that it is incorrect to say that such a package cannot include both contractual and non-contractual benefits and it will be necessary to consider each element of a package individually.

The case is to be remitted to the ET for a fresh hearing based on the Court of Appeal’s finding of flawed reasoning by the original tribunal.

Sallie Alderson
CAS Employment Law Caseworker