Staff handbook provisions had contractual effect, rules Court of Appeal

Out-Law News | 26 Apr 2016 | 2:17 pm | 2 min. read

A recent decision by the Court of Appeal provides a "helpful summary" of the circumstances in which employment terms set out in separate documents should be considered incorporated into employee's contracts, according to an employment law expert.

The appeal court upheld the High Court's finding that an absence management policy set out in a staff handbook formed part of the employment contract, and also set out the principles which should apply where the terms of documents at issue in similar cases in the future were unclear, Edward Goodwyn of Pinsent Masons, the law firm behind Out-Law.com, said.

Goodwyn said that both employment lawyers and HR professionals were often asked to advise on whether employees had contractual rights to issues such as enhanced redundancy payments, defined benefit pensions or particular disciplinary procedures, which were sometimes referred to in 'handbook'-type documents rather than employment contracts.

"The employment relationship is governed by all manner of things including contracts, particulars of employment, policies, codes, offer letters and handbooks," he said. "Well-drafted documents will make it clear which parts of these documents are contractual and which are not. However, this is not always the case."

"Ultimately, the issue will turn upon the precise terms of the particular documents in each case. Where these are unclear, it is the contractual intention of the parties at the time that they entered into the contract which must be determined; and where the intention is not conclusive, the contractual intention is to be ascertained by inference from the other available materials," he said.

The Department of Transport (DfT) had appealed against a finding that an absence management policy had contractual effect. The policy prevented managers from taking disciplinary action against employees for frequent short-term sickness absence until a 'trigger point' of 21 days absence in any 12-month period had been reached. The High Court's ruling affected seven employees all working for different 'agencies' within the DfT, each of which used slightly different versions of the handbook.

Upholding the High Court's judgment, the Court of Appeal confirmed that the policy was "apt for incorporation into the contract between employer and employee". It found that wording used in the handbook which referred to "terms and conditions of employment relating to sick leave" and "management of poor attendance" had "a distinct flavour of contractual incorporation while, of course, preserving the question as to the aptness of any provision to incorporation".

"It seems to me that the introductory words to which I have referred above and the terms of the provision itself indicate that it is designed to confer a right on employees over and above the good practice guidance in the policy section of the handbook," said Lord Justice McCombe, giving the judgment of the court.

"If the provisions had been set out in the same terms in a formal contractual document could if seriously have been argued as a matter of construction that it was not apt for a contractual term and, on that account, not part of the contract? I think not ... [T]his provision is not simply part of a general code or policy; it seems to me to go beyond mere 'framework for discussion' or 'prompts for managers' as the provisions were expressly in [a previous case on the issue, relied on by the DfT]," he said.

The ruling meant that a new attendance management policy introduced by the DfT in July 2012 was not contractually binding on the affected employees, the judge said.

Employment law expert Edward Goodwyn said that whether a document could be incorporated into an employment contract "by inference" depended on the importance of that provision to the contractual working relationship between the employer and the employee; the level of detail in the provision; its certainty and context; and whether or not the provision was "unworkable or made no business sense".

"The more important the provision, such as the elements that relate to remuneration, the more apt it will be for incorporation," he said. "The more detail may infer that it was intended not to be part of the contract but rather a statement of policy, for example in relation to a disciplinary process; while the more certain and less ambiguous, the more apt it will be for incorporation into the contract."