Enhanced Redundancy Terms by Custom and Practice

In the recent case of Park Cakes Limited v Shumba and others the Court of Appeal reviewed the law, and provided some useful guidance, on the circumstances in which an employer might be contractually obliged to pay enhanced redundancy payments as a result of its previous custom and practice.

Many employers will be prepared to offer enhanced redundancy terms. Often, these schemes are discretionary. However, where the position is uncertain, it leaves it open for an employee to argue that it has become a term of the contract and, therefore, binding upon the employer in all cases.

In this particular case, the Court of Appeal set down the test which needed to be applied in order to determine whether or not the scheme has become contractual rather than discretionary in terms of the following six factors.

  1. On how many occasions and over how long a period the benefits in question have been paid;
  2. Whether the benefits are always the same;
  3. The extent to which the enhanced benefits are publicised generally;
  4. How the terms are described;
  5. What it is said in the express contracts and;
  6. Equivocalness – whether the payment was a matter of discretion of a legal right.

Despite the fact that the Court of Appeal was able to set out and clarify these guidelines with respect to the terms which would be implied in that particular case it did not have enough information be able to come to a decision on whether the arrangement in question was contractual or not. The claim was therefore remitted to a fresh employment tribunal in order that further issues of fact could be investigated.

Summary

As soon as an employer decides that it intends to depart from the statutory minimum terms for redundancy payments, it is important that it communicates clearly the basis upon which it is doing so. If it is intended that such a departure is to be operated only on a discretionary basis and that the enhanced terms are not be contractual then it is important that this fact is properly communicated, that the policy is consistently applied and that the paperwork supports this.