Redundancy Payments and Implied Terms

The Problem

Redundancy is often a difficult time for employees and so employers occasionally try to lessen the impact by making payments over and above the statutory rates. In Peacock Stores v Peregrine the EAT had to consider whether the consistent practice of calculating weekly pay for redundancy payments without the statutory caps made this practice a contractual entitlement.

The Principle

A custom and practice which is ‘reasonable, notorious and certain’ may mean that practice becomes an implied contractual term. In this case, since the 1980′s Peacock Stores had routinely paid redundancy pay to staff in accordance with the statutory redundancy scheme, except for the statutory caps relating to length of service and the amount of weekly pay being disapplied.

The judge concluded that there was a consistently applied and understood  policy of enhanced redundancy payments up until 2002.  Although evidence between 2002-2006 was of a more generalised nature, the EAT agreed that a contractual term, that redundancy payments would be made without either cap, could be inferred as at 2006. There was also no evidence to show that the term had been lawfully varied since that date and thus the enhanced redundancy package applied to the Peacock’s redundancies which took place in 2012.

The Practice

Employers need to be well aware of the danger of contractual entitlements being created by custom and practice. Employers need to be proactive in looking out for such practices (especially in a TUPE transfer situation) and, where appropriate or possible, taking steps to stop the practice from continuing. Otherwise, any deviations from an implied contractual term will be a breach of contract.

For more information, help or advice please contact Tim Davies on 0191 211 7927.