Employer’s inconsistent approach meant employees were due more redundancy pay
In the recent case of Peacock Stores v Peregrine the Employment Appeal Tribunal upheld a tribunal decision to imply a term into redundant employees’ contracts entitling them to enhanced redundancy payments.
Facts
Peacock Stores made a number of redundancies from 1971 to 2012. There was a written policy on redundancy procedure but it did not specify whether redundancy payments would be restricted to the statutory scheme, where there is a cap on what constitutes a week’s pay and on the number of weeks that can be paid out. Between 1971 and 2002, the employer had consistently removed these two caps when applying the statutory calculation.
Between 2002 and 2006 there were more redundancies. In 2012 a number of further redundancies were made but the redundancy payments were not calculated according to the enhanced formula which the employer had applied in the past. Many employees received only the statutory minimum amount. These employees subsequently brought claims for breach of contract alleging that there was an implied term in their contracts of employment requiring the employer to pay them enhanced redundancy pay using the uncapped formula.
Tribunal and EAT
The employment tribunal commented on the “dearth of specific information” available in the case but, in the absence of any evidence to contradict the employees’ claim that the employer had applied the enhanced formula in the past, it concluded that the same ‘uncapped’ calculation was used between 2002 and 2006. The position after 2006 was unclear because the employer had made a number of redundancy payments without any consistency in the approach it adopted. The tribunal decided that by 2006 there had been a contractual term implied into the employees’ contract and, therefore, the employees were entitled to the enhanced redundancy payment. The employer appealed.
The EAT supported the tribunal's view that there may have been a variation in practice since 2006, but this did not change that implied term. The employer’s appeal was, therefore, dismissed.
Comment
An implied term in an employment contract can come from custom and practice - that is well established in law. However, this case looks more concerning for businesses - here the employer's inconsistent practice in relation to redundancy payments since 2006 led to a contractual term being implied by a tribunal.
There are practical steps that employers can take to prevent such situations arising. For example, companies could apply any discretion they have over redundancy payments on a case by case basis, and clearly document it or, better still, only offer an enhanced discretionary payment when it is subject to a valid settlement agreement. However, what this controversial case does emphasise is the importance of understanding the implications of an employer's practices, past and present. Employers should ensure that discretionary payments do not become contractual and, where there is a risk that this may be the case, manage that risk to avoid this type of claim arising.
Andrew Haywood is a partner in the employment team at Penningtons Manches
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