Depending on the terms of their contract of employment, an employee may be entitled to an enhanced contractual redundancy payment. However, in Thomas and ors v FW Farnsworth Ltd (trading as Pizza Factory), the Employment Appeal Tribunal (EAT) held that in addition to a statutory payment, the claimants could not rely on custom and practice to argue that they were entitled to an enhanced contractual redundancy payment.
A number of claimants were made redundant by Farnsworth Ltd in January and February 2017. They were paid the statutory redundancy payments to which they were entitled, plus an additional 10 per cent payment negotiated between Unite, their union, and the company.
The claimants argued that they should also have been entitled to contractually enhanced redundancy payments on the basis that either a 1999 collective agreement had been incorporated into their contracts that provided for this, or a term for enhanced payments had been implied into their contracts of employment by custom and practice.
The tribunal found that for more than 10 years before 2009, when companies in the Northern Foods Group (which included Farnsworth Ltd) made redundancies, they offered enhanced redundancy payments on similar terms to those set out in the 1999 redundancy agreement but potentially with important differences in the formula.
However, the tribunal rejected the claimants’ primary case that the 1999 collective agreement was incorporated into their contracts. Furthermore, in respect of their argument based on custom and practice the judge stated that: “Consistent payment of enhanced redundancy by an employer over a period of time does not in and of itself suggest that there is a legal obligation to pay. It only does so if one takes the view that employers are solely interested in their short-term profits and would never make payments they were not legally obliged to make. I do not take such a cynical view”.
In short, the judge felt it was equally explicable that the payments were made as a matter of discretion rather than legal obligation and the claimants could not win unless they could point to something more in the evidence than consistent payment which they were unable to do.
The claimants appealed on the custom and practice argument only. The parties accepted the leading authority relevant to determine the issues was Park Cakes Ltd v Shumba and ors (weekly LELR 336). In this case, the Court of Appeal said that the essential question in determining whether something should be implied through custom and practice was whether the employer had clearly communicated to the relevant employees over a period of time an intention that they could expect to benefit from it as of right. To analyse this, it was necessary to take account all of the circumstances known or which should reasonably have been known by the employees.
Dismissing the appeal, the EAT held that the tribunal had correctly applied the principles set out in Shumba to the facts in this case. The weight to be attached to particular factors to decide whether an employee should reasonably have understood that a particular benefit had been conferred as of right was a matter for the tribunal, as long as their conclusions were not perverse. In the light of the available evidence, the EAT was satisfied that the tribunal’s factual findings and its assessment of the weight to be attached to particular facts was not.
It also held that it was irrelevant that the employer in this case and the employer in the Shumba case had at one time been part of the same group of companies. By the time of the redundancies in Shumba (in 2009) Park Cakes was not part of Northern Foods Group and had not been since 2007. In this case the employer had not been part of Northern Foods Group since 2011. Therefore, by the time of the claimants’ redundancies, Farnworth Ltd and Park Cakes had not been in the same corporate group for ten years. In those circumstances, findings of fact as to custom and practice in Park Cakes in 2009 had no material bearing on the analysis of this case which related to redundancies in 2017.