Arkley v Sea Fish Industry Authority

A contractual redundancy policy expressed in mandatory terms may confer an entitlement even where the benefit is subject to a stated cap. The words “not more than 10 years” imposed a maximum, rather than a continuing discretion to offer less. In construing an employment contract, the court applies the reasonable-person test and considers the background known to the parties. A clear and established practice may assist in resolving ambiguity and identifying the contractual entitlement. An employer cannot unilaterally withdraw the benefit by relying on increased cost following regulatory change; it must seek a consensual variation.

The claimant, employed by the respondent since 1985, was dismissed for redundancy in December 2008. His written contract contained a redundancy policy for staff employed before 1 April 2003. The policy stated that eligible staff would be entitled to pension benefits enhanced by not more than 10 additional years.

The Employment Tribunal majority construed the provision as giving the employer a discretion to provide less than 10 years’ enhancement and dismissed the breach of contract claim. The Chairman dissented, construing the provision as an entitlement subject to a maximum of 10 years. The appeal concerned the proper construction of the contractual term and the effect of the respondent’s established practice.

1. Appeal allowed. The Employment Appeal Tribunal unanimously held that the redundancy policy was expressed in mandatory terms. Clause 1 stated that compensation under the scheme will be payable, while clause 2(e) referred to the employee’s entitlement to immediate pension benefits.
2. The phrase “not more than 10 years” imposed a cap on the additional reckonable service. It did not confer an unfettered discretion on the employer to provide a lesser enhancement. The three stated limitations did not apply to the claimant.
3. The proper construction was determined by what a reasonable person, possessing the background knowledge available to the parties, would understand the contractual language to mean. On that approach, an eligible employee in the claimant’s position would be offered the 10-year enhancement. The respondent’s past practice, including the established practice of offering that option, supported that construction.
4. The 2006 Regulations increased the cost to the respondent because the pension fund could no longer recover part of the cost through a reduction in the employee’s retirement lump sum. That provided a reason to seek a consensual variation of the contract, but did not permit unilateral withdrawal of the contractual option. The respondent was therefore in breach of contract.
5. The EAT substituted a finding of breach of contract and remitted the case to an employment tribunal for assessment of compensation, unless agreed. The alternative ground concerning breach of the implied term of mutual trust and confidence was moot, and the EAT expressed no view on it.

• Employment Appeal Tribunal: allowed the appeal against the majority decision of the Hull Employment Tribunal, whose reasons were promulgated on 3 September 2009. The EAT substituted a finding of breach of contract and remitted compensation for assessment.