"Consistent" change to calculation of redundancy payment became contractual right, says EAT

Out-Law News | 31 Mar 2014 | 3:23 pm | 1 min. read

An employer that routinely disapplied statutory caps in relation to weekly pay and length of service for the purposes of calculating redundancy payments became contractually bound to do so, the Employment Appeal Tribunal (EAT) has found.

The EAT said that three former employees of retail chain Peacocks were entitled to enhanced redundancy pay in keeping with the firm's "custom and practice". The judge said that its policy in relation to enhanced redundancy pay was "consistently applied and well understood", although it was not set out in writing or included in employment contracts.

"From evidence before an employment judge showing that the consistent practice of [Peacocks] in a number of redundancies between the early 1980s and 2002 had been to make redundancy payments based on statutory terms but without a cap on either years of service or the amount of a weekly wage, and some evidence (though generalised) as to the position between 2002 and 2006, the judge held that a contractual term that redundancy payments would be made without either cap, but otherwise on statutory terms could be inferred," he said.

"Once the position was reached that a term was to be inferred, a departure from that term by the employer would represent a breach, unless knowingly agreed to by the employees affected ... that term would continue to apply unless there was some reason why it should not: in particular, whether it was varied by agreement, whether actual or itself to be inferred. There were no circumstances, as the judge held, from which he could properly infer that what had been agreed had been superseded ... It follows that in my view the judge was fully entitled to come to the conclusion he did," he said.

A cross-appeal relating to the holiday pay entitlements of two of the former employees was dismissed, since one could and did prove her entitlement to holiday pay to the judge's satisfaction while the other's evidence was considered to be "vague and uncertain".

An employee who is dismissed as redundant after working for the same employer for two years or more has certain rights, including a right to a statutory redundancy payment based on length of service and weekly pay. Both length of service and weekly pay are capped, however an employer can provide for an enhanced redundancy payment through contract, collective agreement or otherwise at the employer's discretion.

Throughout the time that the three employees worked for Peacocks, express provision was made for redundancy procedures in their employment contracts but not for redundancy pay. The original employment tribunal judge said that it was for the former employees to prove that they were entitled to a payment beyond that provided for by the statutory scheme. On the facts of the case, he found that they had.