Allen & Ors v TRW Systems Ltd

A redundancy policy must first be construed according to its terms. Repeated payments of an additional element do not necessarily create a binding workplace practice, particularly where the payments may have resulted from a mistaken understanding of the policy, the practice was not uniform, and it was later corrected. The evidence must support an inference that the practice had crystallised into a legal obligation. An assurance that a policy will remain in force ordinarily preserves the policy as properly construed. It does not, without clear words, guarantee an erroneous previous application of it.

Employees challenged the construction and legal effect of a redundancy policy used at their employer’s Stephenson plant. The Employment Tribunal held that the policy created no legal obligation to make enhanced redundancy payments and, alternatively, that it required payment of three elements rather than four.

The Employment Appeal Tribunal agreed on the three-element construction but held that the Employment Tribunal had erred in its approach to whether the policy created legal obligations. It remitted that issue to a fresh tribunal. The employer appealed. Following settlement, the question whether any enhanced payment was legally required ceased to have practical significance. Mr Fellows was permitted to pursue an argument that the policy required four elements.

1. Construction of the policy. The policy, properly construed, provided for three elements: statutory redundancy payment, pay in lieu of notice, and the specified special payments. The reference to statutory redundancy under the payment provisions referred back to the method of calculating the statutory payment. It did not create a separate fourth element.
2. Alleged binding practice. The fact that the employer had calculated payments on the basis of four elements on three occasions was insufficient to establish a legally binding practice. Those payments were consistent with a mistaken assumption that the policy required four elements. The Employment Tribunal was entitled to find that no binding practice had arisen. The practice was also not uniform, since a different set of rules had been applied on another redundancy exercise, and the employer reverted to the three-element calculation after the position was identified.
3. Management assurances. Letters guaranteeing that the redundancy policy would remain in force did not promise that the policy would continue to be applied in the erroneous four-element manner. They guaranteed the policy as properly construed, which required three elements.
4. The court therefore rejected Mr Fellows’s cross-appeal on the merits. The settlement removed the practical significance of the employer’s appeal on whether the policy created any obligation to make enhanced payments, so that issue was not determined. Each side was ordered to bear its own costs of the appeal. Order: appeal dismissed.

• Court of Appeal (Civil Division): Dismissed Mr Fellows’s cross-appeal on the construction issue. The settlement meant that the employer’s appeal concerning any legal obligation to make enhanced payments did not require determination. Each side bore its own costs.
• Employment Appeal Tribunal: Agreed that the policy required three rather than four payment elements, but remitted the question whether the policy created legal obligations to a fresh Employment Tribunal.
• Employment Tribunal: Held that there was no legal obligation to make the enhanced payment and, alternatively, that the policy required three rather than four elements.