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Handbook statement on enhanced redundancy scheme has contractual effect
It is common practice for employment handbooks to be divided into contractual and non-contractual sections. Typically, policies and procedures will be contained in the non-contractual section to minimise the risk of breach of contract claims being brought if policies are not strictly adhered to, and to allow the employer greater flexibility when changing the policies and procedures without the need to obtain prior consent from employees before doing so. Although, strictly speaking, consent may not be required, it would nevertheless be good practice to consult and give notice before implenting new policies and procedures.
A recent case considered by the Court of Appeal illustrates that regardless of whether an employer classifies a policy, procedure or practice as contractual or non-contractual, its label cannot alter its fundamental nature.
Keeley v Fosroc International Ltd
Keeley v Fosroc International Ltd centred around an enhanced redundancy procedure. The procedure was set out in the staff handbook in a section dealing with ‘Employee Benefits and Rights' that were labelled as non-contractual.
The Court found that although the wording did not identify how the redundancy payment was to be calculated, as a matter of construction it was capable of being a contractual term. It also held that redundancy provisions are by their very nature particularly ‘apt' for incorporation into a contract of employment.
The employer's position was not assisted in this case by the fact that the enhanced redundancy payment was described as something to which the employee was ‘entitled'. This undermined any argument that it was not a contractual entitlement but something that could be paid at the employer's discretion.
Word of warning
Although the case is highly fact specific, the fact that the Court of Appeal considered that enhanced redundancy schemes are ‘apt' for incorporation into contracts of employment suggests that it may be easier for employees to argue that enhanced redundancy schemes described in employer's handbooks are of a contractual nature. Employers that operate such schemes on a discretionary basis should not include details of them in employee handbooks or contracts, and should certainly not describe them as absolute entitlements.
Keeley v Fosroc International Ltd [2006] EWCA Civ 1277