Enhanced Redundancy Payments

The Court of Appeal recently held that a term entitling employees to an enhanced redundancy payment was implied into their contracts of employment by virtue of the employer's custom and practice.

ALBION AUTOMOTIVE LTD V WALKER & OTHERS

In January 1999 Albion Automotive made 22 employees redundant from its Farington site. The employees had no written contracts of employment, but instead their terms were negotiated each year on a collective basis with the trade unions. There was, however, no collective agreement in relation to redundancy payments. The employees were offered their statutory redundancy entitlement.

The employees argued that, in the previous 10 years (during which period the site had two different owners), over 750 employees at the Farington site (which represented 75% of the workforce) had been made redundant on enhanced terms. Furthermore, the enhanced redundancy terms had been brought to the attention of all the employees in writing. They therefore argued that the employer intended to be bound by these enhanced terms.

Albion, on the other hand, submitted that there was no agreement to pay the enhanced terms in the future. Rather, those terms were simply the agreement that happened to be reached on previous occasions with those employees who were being made redundant. It also noted that in the most recent redundancy exercise 5 employees had been made redundant and had only received their statutory entitlement.

THE DECISION

The Tribunal held that the employees were entitled to the enhanced redundancy terms. In doing so, the Tribunal made, amongst others, the following findings of facts:

the enhanced redundancy terms had been drawn to the attention of the employees;

the policy had been consistently followed for a substantial period of time - when not followed in relation to the 5 employees mentioned by Albion, the Tribunal found that those employees had been told they had a contractual right to the enhanced redundancy payment and advised to take legal action but they declined to do so;

the payment of the enhanced package had become virtually automatic from the Company's point of view.

This decision was upheld by the Employment Appeal Tribunal. The EAT examined the law in relation to contractual entitlements being implied into the contract of employment by custom and practice. The main factors to be considered, it said, were whether the policy was brought to the attention of the employees and whether the policy had been...

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