Publicis Consultants UK Ltd v O'Farrell

A payment described as ex gratia will ordinarily be understood as a payment made freely, rather than in satisfaction of a contractual entitlement. Construction remains an objective exercise, taking account of the words used and the relevant background. Where the employer’s unilateral document is genuinely ambiguous, it may be construed against the employer under the contra proferentem rule. A severance payment calculated by reference to notice pay does not discharge the contractual notice entitlement where the dismissal letter describes it as ex gratia and states that the package exceeds the employee’s entitlements.

The employee had a contractual entitlement to three months’ written notice. She was dismissed for redundancy by letter giving four days’ notice. The letter stated that she would receive an ex gratia payment equivalent to three months’ salary, statutory redundancy pay and holiday pay, describing the package as exceeding her statutory entitlement.

An Employment Tribunal found the dismissal unfair and allowed the employee’s breach of contract claim for unpaid notice pay. The employer appealed, contending that the ex gratia payment represented or exhausted the notice entitlement. The central issue was the true construction of the dismissal letter.

1. Appeal dismissed. The Employment Tribunal had correctly construed the dismissal letter. The employee remained entitled to compensation for the employer’s failure to provide the contractual three-month notice.
2. The task was one of construction as a matter of law. Applying the principles stated in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, the starting point was the words used, understood by a reasonable reader in the relevant factual background.
3. The letter presented three separate payments. Statutory redundancy pay and holiday pay were payments made because the employer was legally obliged to make them. The third payment was expressly described as an ex gratia payment. In its ordinary sense, that meant a payment made freely or by favour, rather than under legal obligation. The reference to a package in excess of the employee’s entitlements was inconsistent with treating the payment as notice pay.
4. The earlier redundancy letter concerned a materially different situation. It contemplated dismissal with contractual notice and therefore did not alter the objective meaning of the later dismissal letter. An unpublished draft letter in the employer’s possession could not form part of the shared factual background.
5. Even if the later letter had been ambiguous, the unilateral nature of the employer’s communication would have justified construction against the employer under the contra proferentem rule. Bevan Ashford v Malin [1995] ICR 453 did not confine that rule to penal communications. This alternative reasoning was unnecessary because the Tribunal found, and the EAT agreed, that the letter was unambiguous.

• Employment Appeal Tribunal: allowed the appeal to proceed on the construction issue and dismissed the employer’s appeal, upholding the Employment Tribunal’s decision on unpaid notice pay.
• Employment Tribunal, London Central: found the dismissal unfair and allowed the employee’s breach of contract claim for notice pay. The citation was not stated in the judgment.