05 Aug 2013

More on redundancy

Employment alert email

Tuesday 6 August 2013

The test on custom and practice is an objective one. It is necessary to take account of all the circumstances known, or that should reasonably have been known, by employees when considering this question.  Underhill LJ in the Court of Appeal has set out a non-exhaustive list of the relevant questions that must be addressed:

1. On how many occasions, and over what period, have the enhanced benefits in question been paid?  The greater the frequency and the longer the period, then the more likely it is that employees will reasonably understand them to be being paid as of right

2. Have the benefits always been the same? If an employer who makes enhanced redundancy payments nevertheless varies the amounts or the terms of payment, that is inconsistent with an acknowledgment of a legal obligation; if there is a legal right it must be certain. Any inconsistency during the period relied on as establishing the custom is likely to be fatal.

3. To what extent are the enhanced benefits publicised generally? If publicised then this will tend to convey that they are paid as a matter of obligation, though this is not conclusive, and much will depend on the circumstances.  "Publication" may take many forms. There needs to be "widespread knowledge and understanding" on the part of employees that they are legally entitled to the enhanced benefits.

4. How are the terms described?  If an employer clearly and consistently describes the enhanced redundancy terms as discretionary - e.g. by describing them as ex gratia - it is hard to see how the employees or their representatives could reasonably understand them to be contractual, however regularly they may be paid. A statement that the payments are made as a matter of "policy" may, though again much depends on the context, be treated the same. Conversely, the language of "entitlement"  points towards a legal obligation on the employer.

5. What is said in the express terms and conditions of employment?  No term should be implied, whether by custom or otherwise, which is inconsistent with the express terms of the contract.

6. Who bears the burden? The burden of establishing that a practice has become contractual is on the employee, and he will not be able to discharge it if the employer's practice is, viewed objectively, equally explicable.

In practice the best policy is to have no policy on redundancy payments. This may not always be possible for historical reasons. To the extent that employers wish to have some certainty around this issue, then careful drafting and the implementation of such a policy in practice will be key. Any employer who has a redundancy policy of paying out sums in accordance with a set formula should ask itself the above questions as to whether it has any discretion remaining before it embarks on any redundancy programme in the coming months.


Paul Reeves

Paul Reeves
Head of employment

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