A recent case on redundancy payments disappointed, but did not surprise us. We think our clients might be surprised, though, so we bring to you this development in UK employment law (redundancy).

UK employment law - redundancy 1The employer in this case had a written redundancy policy which set out the statutory redundancy payment in case of redundancy – i.e. its contractual redundancy policy did not gold-plate the legal minimum.

However in practice the employer would give a bit more. It did not apply the statutory caps when calculating the amount, meaning that those earning over £450 gross per week (and very long-serving employees) got more than the law provided for.

Employees started to see this as an expectation rather than a gift. This case held that the practice had, over time, converted the extra payment into a contractual right.

This may seem to penalise generosity but it is a natural result of several employment contract law principles. One is that the paper contract does not contain all the terms and conditions of the relationship – terms can be implied as well as express. We know this, because when we buy a new car, we don’t check the small print to ensure it comes with an engine. Obvious terms are implied by law, such as the right to a statutory redundancy payment.

UK employment law - redundancy 2But legal rights can be implied too, such as by custom and practice. We know this from every-day life – rights of way become established over time and then the landowner can’t take them away.

A couple of principles act as a brake on this idea though. For one, the onus is on the employee to show that the practice has become elevated into a contractual entitlement.

For another, what the employee is asking for must be reasonable, well-known and not too nebulous to describe.

Third, the law won’t imply a term if it would conflict with something that was expressly agreed. So if the contract had said “you are entitled to the statutory redundancy payment and no more” the employer would have been on stronger ground.

What does this mean for, say, your regular Christmas gift? Well, as unsavoury as it sounds, the only way for an employer to keep their options open for the future are to make exceptions so that they can point to them if need be and say “see, we don’t do it on every single occasion”. Exceptions are inconsistent with the rule. When times are lean, consider taking the opportunity to pull in your horns.

Case report: Peacock v Peregrine