Take care to ensure that enhanced redundancy payments do not become an implied term.

3 April, 2014
by: Cripps Pemberton Greenish

Last week the Post Office announced its intention to cut 1600 jobs and Honda announced plans to cut production at its Swindon factory, with 500 jobs under threat. These are reminders that whilst the economy seems to be starting to improve many businesses continue to look at ways to preserve their future.

The Employment Appeal Tribunal held last week in Peacock Stores v Peregrine, that an employer’s practice of enhancing redundancy payments converted into a contractual right for future practice.

In this case the employer had routinely paid its staff in line with the statutory redundancy scheme, except for the statutory caps relating to length of service and the amount of weekly pay being disapplied. It was for the employee to show that there was a contractual entitlement to the uncapped payments, which was a question of fact. The former head of HR gave evidence that the calculation of redundancy payments in the above manner was ‘most definitely custom and practice’. The Judge concluded that there was ‘a consistently applied and well understood policy of enhanced redundancy payments’. Therefore a contractual right to an uncapped redundancy payment had been implied by custom and practice and the non-payment of the enhanced sum was a breach of contract.

As a result of this judgment, employers should be clear as to their intentions when enhancing redundancy payments. The important question is not whether the employer intended to be bound, but whether their conduct conveyed an intention to be bound by the enhancement. Where an employer contends that a specific decision was made on each occasion, this is only relevant to the extent that an employee would appreciate that this is the employer’s approach. To minimise the risk, employers should make clear and keep documented that the payment is being enhanced in the particular way for that redundancy. Finalising matters under the terms of a Settlement Agreement will also assist in showing that the enhancement has been offered on a case by case basis, without an automatic entitlement being implied.