Implied terms relating to the calculation of redundancy payments

Implied terms relating to the calculation of redundancy paymentsOne aspect of employment law that arises on a fairly regular basis in practice is whether or not an employee has certain terms included within their employment contracts which are not express but implied.

Implied terms can form part of an employee’s contract due to the custom and practice of an employer over a period of time.

The Employment Appeals Tribunal (EAT) has recently considered whether the consistent practice of an employer calculating redundancy payments without applying the statutory caps convert into an implied contractual right for future practice that employees can rely on.

When calculating an employee’s entitlement to redundancy pay an employer should consider the employee’s gross weekly salary as well as their age and length of service. Under the statutory redundancy scheme an employee’s weekly pay is capped at £450 gross (£464 gross from 6th April 2014) and the maximum number of years of service that can be taken into account is capped at 20 years.

In the case of Peacock Stores v Peregrine and others the employer had regularly paid redundancy pay to its staff that had been calculated based on the statutory redundancy scheme. However the employer did not apply the statutory caps in relation to length of service or amount of weekly pay.

Mr Peregrine claimed that the company had breached his contract of employment by failing to calculate his redundancy pay in the same way that it had calculated the entitlement of employees previously when the statutory caps were not applied.

The Claimant was required to prove that there was a contractual entitlement to the uncapped payments and that there was a practice of calculating redundancy in this way which was a question of fact. The Claimant was helped in this case by the company’s former head of HR who confirmed in evidence that the calculation of a redundancy payment without applying the statutory caps was custom and practice.

The Judge held that there was “a consistently applied and well understood policy of enhanced redundancy payments” and also that it was probable that this was still the situation until 2002 when Mr Thomas was made redundant. The company could provide no evidence to the contrary.

Once the Judge had confirmed that a contractual right to an uncapped redundancy payment was to be implied by custom and practice it was clear that any departure from that term by the company would represent a breach of contract.

If you have been made redundant by your employer and you believe that you are entitled to a redundancy payment or that your redundancy pay has been calculated incorrectly or you have been dismissed for any reason and you believe that your dismissal was unfair please contact the dedicated employment department at Michael Lewin Solicitors and we will be happy to discuss your potential claim for unfair dismissal or breach of contract.

Anthony Fox


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