Last week the Post Office announced its intention to cut
1600 jobs and Honda announced plans to cut production at its Swindon factory,
with 500 jobs under threat. These are
reminders that whilst the economy seems to be starting to improve many
businesses continue to look at ways to preserve their future.
The Employment Appeal Tribunal held last week in Peacock
Stores v Peregrine, that an employer's practice of enhancing redundancy
payments converted into a contractual right for future practice.
In this case the employer had routinely paid its staff in
line with the statutory redundancy scheme, except for the statutory caps
relating to length of service and the amount of weekly pay being
disapplied. It was for the employee to
show that there was a contractual entitlement to the uncapped payments, which
was a question of fact. The former head of HR gave evidence that the
calculation of redundancy payments in the above manner was 'most definitely
custom and practice'. The Judge
concluded that there was 'a consistently applied and well understood policy of
enhanced redundancy payments'. Therefore
a contractual right to an uncapped redundancy payment had been implied by
custom and practice and the non-payment of the enhanced sum was a breach of
contract.
As a result of this judgment, employers should be clear
as to their intentions when enhancing redundancy payments. The important question is not whether the
employer intended to be bound, but whether their conduct conveyed an intention
to be bound by the enhancement. Where an
employer contends that a specific decision was made on each occasion, this is
only relevant to the extent that an employee would appreciate that this is the
employer's approach. To minimise the
risk, employers should make clear and keep documented that the payment is being
enhanced in the particular way for that redundancy. Finalising matters under the terms of a
Settlement Agreement will also assist in showing that the enhancement has been
offered on a case by case basis, without an automatic entitlement being
implied.
Erica Dennett