In order to enforce an employer’s redundancy policy, the employee has to show that it constitutes a term of their contract. In Allen and ors v TRW Systems Ltd, the Employment Appeal Tribunal (EAT) said that references to redundancy policies in documents such as employee handbooks were capable of being a source of contractual obligation.
Basic facts
In 1999 TRW Systems Ltd agreed a redundancy policy with the members of its advisory council which provided for enhanced payments. The main terms of their employees’ contracts were set out in a document entitled "Statement of Main Terms and Conditions of Employment". The statement did not expressly incorporate the handbook, but referred to it in relation to issues such as holidays and sickness. The employee handbook contained a section regarding redundancies and stated that “in the event of redundancies the Redundancy Policy will be implemented”.
In October 2008, the HR director wrote to all employees stating that the policy would remain in place until December 2010 and wrote again along similar lines in March 2009. The company then decided to close the plant in 2010 and refused to honour the policy. The claimants complained to a tribunal that they were entitled to an enhanced redundancy payment under the terms of the policy as it was incorporated into their contracts.
Tribunal decision
The tribunal, however, said that as the document was written as a policy, it was not a term of any of the employees’ contracts. In addition, it was expressly stated in their terms and conditions that collective agreements were not applicable to their contracts and nor was the redundancy policy referred to anywhere.
Although the employee handbook referred to the policy, it did not set out what the policy actually was and the tribunal concluded that “the employees could not have had a reasonable expectation that payment would be made".
The claimants appealed, arguing that the tribunal had overlooked the contractual status of the handbook.
EAT decision
And the EAT agreed. It said that the statement of terms and conditions did not have to cover all contractual eventualities, so it was not uncommon to find references to them in different documents, such as employee handbooks, custom and practice or even orally.
It also pointed to the statement by the Court of Appeal in the case of Keeley v Fosroc International, that “the fact that the staff handbook was presented as a collection of 'policies' does not preclude their having contractual effect if, by their nature and language they are apt to be contractual terms ...”
The fundamental question, said the EAT, was whether the circumstances in which the enhanced redundancy package had become known supported the inference that the employers intended to be contractually bound by it. That question had to be decided by objectively looking at the circumstances, not the employer's private intentions.
In this case, the policy had been agreed with the advisory council and had then been made the subject of an express promise in the employee handbook which was reiterated by the employer in correspondence. How, asked the EAT, could an employer deny the reasonable expectation held by the employees that they would be paid in accordance with the promise?
It warned tribunals to carefully scrutinise arguments by employers that payments which were “intended to be part of an employee's remuneration package, once promised and communicated, were merely matters of policy and discretion”.
As the tribunal had not considered whether the handbook was capable of being a source of contractual obligation, the EAT remitted the case to a new tribunal to address this issue.