Can the historical payment enhanced redundancy payments give rise to a legally enforceable right to them?

Yes it can, according to a recent decision of the Employment Appeal Tribunal in Peacock Stores v Peregrine, provided the practice has been so common place as to amount to an ‘automatic entitlement’.

Background

Peacock had routinely paid an enhanced redundancy payment to staff, by dis-applying the statutory cap on length of service (20 years) and statutory weekly amount (currently £464). They had been doing this since the early 1980s.

When Peacock experienced financial difficulties and had to make many redundancies, they changed their minds. The employees brought claims, saying they had become legally entitled to the enhanced payments, even though nothing was written into their contracts.

The legal test in these cases in whether or not a contractual entitlement can be implied into the employment contract by ‘custom and practice’, even though there is nothing in the written contract. The classic test for custom and practice is that the term to be implied must be ‘reasonable, notorious and certain’. This has also been put in recent cases as follows: whether viewed objectively, the payment should reasonably be understood by the employees as indicating an ‘automatic entitlement’. In this case, it was, at least by 2006, and employees were therefore entitled to the additional amount as a matter of contract.

Implications for businesses

This is a worrying development for businesses, and the test that is being applied of ‘automatic entitlement’ seems to be easier to pass than the old test of ‘reasonable, notorious and certain’. In the case of Park Cakes v Shumba, which the EAT referred to here, an automatic entitlement was established even though the enhanced redundancy payment had not been automatically made in the past.

Employers should therefore be careful not to pay a consistent amount of enhanced redundancy money automatically, but if they want to make enhanced payments should make a variety of payments calculated in different ways.

They should note, however, that to avoid age discrimination they need to follow a method of calculation that broadly follows the calculation for statutory redundancy pay: employers are not only allowed to remove or raise the cap on a week’s pay, increase the amount paid for each week, or increasing the overall figure by multiplying it by a figure of more than 1.

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Updates: For employers: Redundancies | For employees: Redundancy |

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