Keeley v Fosroc International Ltd

A provision in a staff handbook expressly incorporated into an employment contract is contractual where its subject matter and language are apt to create legal rights. Its contractual character is determined by construing the contractual documents together. Evidence of the parties’ subjective intentions or subsequent conduct is inadmissible for that purpose.

A provision conferring an entitlement to an enhanced redundancy payment may be binding despite omitting the detailed calculation formula. It is sufficiently certain where it identifies an ascertainable formula or process applicable when payment falls due. Its position among procedural or aspirational policies does not override clear language of entitlement, particularly where the benefit forms part of the employee’s remuneration package.

Christopher Keeley was dismissed for redundancy by Fosroc International Ltd. His written Statement of Employment Terms incorporated Fosroc’s staff handbook, which stated that employees with at least two years’ continuous service were entitled to an enhanced redundancy payment. The detailed calculation formula was not printed in the handbook.

HHJ Reid QC, sitting as a High Court judge, held that provisions in the handbook were incorporated only where apt to constitute contractual terms. He decided that the enhanced redundancy payment provision was not so apt and rejected an alternative term based on custom and practice.

The employee appealed. The central issues were whether the provision created an express contractual entitlement and whether the absence of a printed calculation formula made it too uncertain to enforce.

1. Appeal allowed. The enhanced redundancy payment provision was an express contractual term and was sufficiently certain. Auld LJ delivered the judgment, with which Dyson LJ and Sir Martin Nourse agreed.

2. The issue was one of construction of the Statement of Employment Terms and the incorporated staff handbook. It was not an anterior question of fact about whether the parties intended to enter contractual relations. Where an acknowledged contractual document incorporates another document and there are no other candidates for the relevant terms, the two documents must be construed together. Evidence of subjective intentions, negotiations and subsequent conduct was inadmissible for construing the express provision. Air Great Lakes PTY Ltd v KS Easter (Holdings) PTY Ltd [1985] 2 NSWLR 309 and Carmichael v National Power Plc [1999] ICR 1226 were distinguishable because they concerned whether incomplete documentary material created or exclusively recorded a contractual relationship.

3. Express incorporation of a handbook does not make every provision contractual. The court must examine the incorporating words and ask whether the particular provision, read in context, is apt to form a contractual term. Aspirational, procedural or discretionary policies may lack that character. The enhanced redundancy provision was different: it concerned an important part of the remuneration package, used clear language of entitlement and appeared in the handbook’s “Employee benefits and rights” part. Nearby rights to paid time off and an appeal against dismissal reinforced its contractual character.

4. The provision was not defeated by uncertainty. The expression “an enhanced redundancy payment” referred to an ascertainable method of calculation in force when payment became due. Fosroc’s pleading acknowledged the minimum formula relied upon by the employee. A contractual mechanism may permit the applicable calculation to change while preserving the underlying entitlement.

5. In any event, Horkulak v Cantor Fitzgerald [2005] ICR 402 showed that a discretionary contractual benefit may require an employer to assess and pay a sum rationally and fairly despite the absence of an express formula. The present claim was stronger because it rested on an entitlement linked to an acknowledged formula. It was unnecessary to decide the alternative claim based on custom and practice.

1. Court of Appeal (Civil Division): By [2006] EWCA Civ 1277, unanimously allowed the employee’s appeal and held that the enhanced redundancy payment provision was an enforceable express contractual term.
2. High Court, Queen’s Bench Division: HHJ Reid QC held that the employee had no express or implied contractual entitlement to the enhanced redundancy payment.