This week’s case looks at implied terms and when the payment of an enhanced redundancy payment as set out by a collective agreement will become a contractual term by way of ‘custom and practice’. This week’s case looks at implied terms and when the payment of an enhanced redundancy payment as set out by a collective agreement will become a contractual term by way of ‘custom and practice’.

Background

Employment practices can become impliedly incorporated into employment contracts if they are ‘reasonable, certain, and notorious. In other words, everyone has to know about them, and they must always happen.

The leading case in the area is Park Cakes Ltd v Shumba [2013] EWCA . It sets out various relevant considerations when determining whether a custom or practice has become implied into the contract:

  • On how many occasions and over how long a period has the benefit in issue been paid?
  • Have the benefits always been the same?
  • Have the enhanced benefits in issue always been publicised, and on what terms?
  • How have the terms been described by the employer? (i.e., have they been labelled as ex gratia?)
  • What (if anything) is said in the written contracts of the employees concerned?
  • Has the employer’s practice, viewed objectively, been equivocal and unwavering?

In the round, a custom or practice alleged to be impliedly contractual must be constant, consistent, expected, and long-standing. It must be something that employees genuinely expect to receive.

On the facts of today’s case, this was not so. The employer had not always made the enhanced redundancy payment, and when it did, it was not always the same amount. It is a high bar to imply a contractual term because of custom and practice. Hasty imposition of a legal obligation would punish benevolent employers. The Court of Appeal recognised this in Shumba:

“Consistent payment of enhanced redundancy by an employer over a period of time does not in and of itself suggest that there is a legal obligation to pay. It only does so if one takes the view that employers are solely interested in their short-term profits and would never make payments they were not legally obliged to make. I do not take such a cynical view.”

Comment

Employers should be able to swat away any arguments that various employment practices have become contractual so long as they err on the correct side of Shumba. Unless something is entirely expected by every employee, exhibiting gasps in its absence, it won’t be contractual. Employers cannot be penalized for occasional and discretionary generosity.