May 31, 2014

Redundancy – There’s a cost to inconsistency

Some employees pay out different amounts of redundancy money – on a case by case basis – assuming it will not mean they have to pay more in the future.

But that assumption has been thrown into some doubt by a recent appeal case (Peacock Stores v Peregrine [2014]) in which an employer’s (somewhat inconsistent) practice of paying enhanced redundancy terms was held to be an implied term of the employees’ contracts.

In the Peacock case the employer had given enhanced redundancy terms to employees for a period from the early 1980’s to 2002, but thereafter the practice was somewhat inconsistent. Nothing was written into the employees contracts which set out any right to enhanced redundancy and the employer appeared to assume that the enhancements were purely discretionary.

However, the Tribunal concluded (the EAT agreeing) that it was an implied term of the employees contracts that they would receive enhancements.

Despite the inconsistent practice of the employer between 2002 and 2012 the court held that there was an implied term, based on the employer’s consistent practice of paying enhancements in the period up to 2002. Each case is of course decided on its own facts, but it is well established in contract law that a term can be implied into a contract by words as well as by conduct.

This case highlights the importance of having well-constructed contracts of employment and related policies. More particularly an employer should be careful when administering benefits which it may regard as discretionary, to ensure that it is not applying them in such a way that they could be regarded as contractually binding.

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