In certain circumstances, terms can be implied by a court into a contract of employment. In Garratt v Mirror Group Newspapers (MGN) the Court of Appeal said that the contract contained an implied term specifying that the employer would only pay an enhanced redundancy payment if the employee signed a compromise agreement.
Basic facts
Mr Garratt, a photographer for MGN, claimed that he was entitled to an enhanced redundancy payment when he was dismissed in 2006 because a collective agreement dated August 2002 was incorporated into his amended 2005 contract.
MGN would only pay the enhanced sum, however, if he agreed to sign a compromise agreement in full and final settlement of all claims. It argued that the union, of which Mr Garratt was a member, was aware that the requirement to sign an agreement was a matter of company policy before an employee dismissed for redundancy could receive an enhanced redundancy payment.
However, Mr Garratt was not prepared to sign and issued proceedings for breach of contract for just over £30,000.
Decision of Mayors and City of London Court
The circuit judge found that arrangements for paying enhanced redundancy payments had been in existence since 1993 at MGN. No employee had been paid an enhanced redundancy payment without signing a compromise agreement since that date.
He also pointed out that MGN only made the payment in return for the employee entering the compromise agreement - there was no other incentive for the company to do so.
The requirement to sign a compromise agreement had also been expressly notified to all employees identified as redundant since 1993, and signing the agreement was an automatic consequence of being dismissed as redundant.
No employee, other than Mr Garratt, has sought to insist on a contractual right to an enhanced redundancy payment in the absence of a signed compromise agreement. As he had not signed, he did not receive the enhanced payment because it was subject to an implied condition that he do so.
Court of Appeal decision
The Court of Appeal dismissed Mr Garratt’s argument that the position was "akin to an employer who purports unilaterally to vary a contractual term", saying that the issue was not whether the employer intends to be bound by the new term but whether the employees have agreed to the variation by their response.
The 'reasonable, notorious and certain' test for an implied term to be incorporated by virtue of custom and practice was satisfied in this case. It was reasonable for the employers to achieve “finality” on the dismissal of an employee; the practice was well known and understood by employees; and it was certain that they had to sign the compromise agreement if they wanted the enhanced payment.
It was up to Mr Garratt to decide what to do - he had total freedom of choice. “What the employee could not do was to obtain the enhanced redundancy pay without entering into the compromise agreement”.
It concluded that Mr Garratt’s contract was amended in 2005 to incorporate the collective agreement which included the terms related to payment of redundancy.
It was up to him, said the Court, to decide whether he would be better off taking other proceedings against MGN. “By refusing to sign the compromise agreement, he decided that they were. In my judgment, his contract did not entitle him to both”.