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24 July 2014 0 Comments
Posted in Employment, Opinion

More custom and practice – redundancy payments

Posted by , Partner

In a month of a clutch of cases on whether or not enhanced redundancy policies are contractual, Allen and others v TRW Systems Limited is another Court of Appeal judgment in a case concerning the terms of an enhanced redundancy payment policy. The employer’s redundancy policy required it to pay an enhanced severance package comprising 3 elements. On at least 3 occasions, the employer had mistakenly included a fourth element. When it realised it did not have to do this, it stopped doing so and subsequently made redundancy payments, both voluntary and compulsory, utilising a different payment policy. The Claimants, who were made redundant in 2012, received statutory redundancy payments only and brought claims for breach of contract.

The Tribunal dismissed the claims on the basis that it did not consider the company was under any legal obligation to make the enhanced payments under the redundancy policy because these were not contractual. Even if they were, the Tribunal held that the company would only be required to pay the three elements mentioned in the policy. The EAT upheld the Claimants’ appeal and remitted the case to a freshly constituted Tribunal. The company appealed to the Court of Appeal although all claims bar one were subsequently settled. The final Claimant would not settle because he believed that he was entitled to the fourth element, which had been paid on only about three occasions.

The Court of Appeal dismissed the Claimant’s cross appeal on the basis that the practice only having occurred about three time was insufficient to cause it to crystallise into a legal obligation. It held that the company’s actions were consistent with it having made a genuine mistake in paying the fourth element and when it realised it did not have to do so, ceasing this. Furthermore, on another occasion, a completely different policy was applied. The Court of Appeal therefore held that this was not a contractual obligation as it had not occurred enough times to render it an implied term through custom and practice.

It is interesting to compare this decision to the one in CSC Computer Sciences, where the consistency of the annual pay increase did render this an implied term through custom and practice. In this case, the practice of paying a fourth element of the redundancy payment had not occurred with sufficient frequency to warrant this.

This legal update is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.

For further details on any of the issues covered in this update please contact Gemma Ospedale, Partner in Employment on 020 7583 2222.

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