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When discretionary redundancy payments become contractual

28.03.2014: When do enhanced redundancy payments become binding on the employer?

 

In Park Cakes Ltd v Shumba in 2013, the Court of Appeal gave general guidance on when employees could rely on enhanced redundancy payments. The Court said that issues to take into account included:

 

  • On how many occasions, and for how long the benefits have been paid;
  • Whether the benefits are always the same;
  • The extent to which the enhanced benefits are publicised generally;
  • How the terms are described;
  • What is said in the express contract;
  • Whether the employers practice could be equally explained as the exercise of discretion.

 

In Peacock Stores v Peregrine reported this week the EAT considered whether the consistent practice of an employer calculating redundancy payments without statutory caps became into a contractual obligation.

 

In this case it was held that there was a consistently applied and well understood policy of enhanced redundancy payments since about 2002. The contractual right to an uncapped redundancy payment could therefore be implied by custom and practice.

 

Other employers should always be wary to avoid such enhanced terms being implied.  It would be sensible not to put enhanced payments in any contractual policy and on each occasion to express the payment to be discretionary. If the employer can demonstrate that their discretion varied at different points in time, so much the better.

 

We are employment solicitors advising on redundancy and settlement agreements, amongst other matters, based in Holborn, Central London WC1V 7QT.

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