According to the Court of Appeal in Keeley -v- Fosroc International Ltd (2006, IRLR 961; IDS 817) a reference in Mr Keeley’s contract to an “entitlement” to an enhanced redundancy payment in the staff handbook had contractual status, although other sections in the handbook did not.
What were the basic facts?
Mr Keeley had a contract of employment with Fosroc International Ltd consisting of a written statement of his terms of employment. Incorporated in the statement was a reference to the company’s staff handbook.
This was divided into three parts – “Employee Benefits and Rights”, “Working Procedures” and “Rules and Disciplinary Procedures”. The section headed “redundancy” (in part one) contained a number of contractual provisions, such as the right to paid time off to look for work elsewhere.
It also contained a paragraph headed compensation, which stated that employees with two or more years' service were entitled to an enhanced redundancy payment. The enhanced terms were not spelt out – it just said that details would be discussed during both collective and individual consultation.
This part of the handbook also covered a number of other different employees' rights and benefits, many of which (although not all) were clearly contractual. These included annual leave, retirement, grievance, pregnancy and maternity rights and trade union membership. Likewise the second and third parts.
When Mr Keeley was made redundant in July 2004, he claimed that his contract expressly entitled him to an enhanced redundancy payment, or, alternatively, that he had an implied right because of custom and practice. The company claimed it was too uncertain to have contractual effect.
What did the High Court decide?
The High Court judge said that the terms of the handbook were incorporated into the contract, but only in so far as they spelled out terms of employment.
He accepted that although the provision relating to redundancy was expressed “not as some aspiration but as a statement of the entitlement of the employee … the whole provision must take its colour from the context”.
In this case, the context was very much just “an exposition of the principles and particularly the procedures to be applied to handling redundancies”. He said it was significant that the document did not spell out what the enhanced terms were (despite pressure from union representatives to include a formula).
He concluded that the section simply signified what the employee could expect to receive under the policy, but could not be said to import an express contractual right to an enhanced redundancy payment into Mr Keeley’s contract, nor could it be implied.
What did the Court of Appeal decide?
The Court of Appeal disagreed. Although it agreed with the judge that it was important to look at the context of the provisions in question, it said he had given too much weight to this as a starting point.
As a result, he had not given enough consideration to the other provisions in the “Employee Benefits and Rights” part (i.e. to the “overall bargain” of the remuneration package). Nor had he adequately explained why the context, as he had defined it, should override the plain words of entitlement in the provision itself.
The Court pointed out that there were other sections in the staff handbook, for example, on annual leave, that were also part of the “context” in which the redundancy entitlement should have been considered, and which were clearly contractual.
In addition, the redundancy section itself contained provisions for paid time off to look for work elsewhere and the right to appeal against dismissal. These, said the Court of Appeal, also provided “close supporting context for concluding that statements of entitlement in that section were intended to have contractual effect”.
The fact that the enhanced redundancy provision was incorporated by a reference to the statement of employment terms – rather than set out in it – did not mean it could not have contractual effect. Likewise the fact that the formula for calculating it might change from time to time.
The enhanced redundancy provision, in its use of the word “entitled” and in its location in the “Employee Benefits and Rights” part of the staff handbook, clearly referred to a legal right and could be enforced by Mr Keeley. Usefully the Court noted that enhanced redundancy terms were such a widely accepted feature of employment relations that these clauses were particularly appropriate to be considered as contractual terms.