CSC Computer Sciences Ltd v McAlinden & Ors

Whether a term has arisen from custom, practice or conduct is determined by ordinary contractual principles. The court asks what employees reasonably understood from the employer’s words and conduct, considering the regularity and consistency of the practice, its communication, the parties’ understanding and the written contract. The label “custom and practice” is not decisive. A practice may crystallise into an implied contractual entitlement even where the employer acted under a mistaken belief that the entitlement already existed. The employer’s subjective belief does not control the objective effect of its communications. Evidence that a benefit was described as guaranteed or contractually due may therefore support an implied term, subject to any established qualification such as satisfactory performance.

Twenty-three employees transferred from IT Services Ltd to CSC in 2000 under the Transfer of Undertakings (Protection of Employment) Regulations 1981. Their former contracts provided for annual salary reviews, and CSC had paid them increases linked to the retail prices index. The Employment Tribunal held that this practice had crystallised into an implied contractual right and that failure to pay the 2010 increase constituted an unauthorised deduction from wages contrary to Part II of the Employment Rights Act 1996.

The Employment Appeal Tribunal, presided over by Langstaff P, upheld that decision under UKEAT/0252/12/LA. CSC appealed, arguing that the Employment Tribunal had relied on CSC’s subjective belief and that a mistaken belief could not create contractual obligations. The central issue was whether the communications and conduct objectively conveyed a contractual entitlement, even if the underlying belief was mistaken.

1. Appeal dismissed. The Employment Tribunal had not impermissibly based its conclusion on CSC’s subjective belief. It expressly found that the policy of paying at least the retail prices index increase had been communicated to, and understood by, the employees.
2. The correct approach to an alleged term arising from custom, practice or conduct was set out in Park Cakes Ltd v Shumba [2013] EWCA Civ 974, following the approach in Garratt v Mirror Group Newspapers Ltd [2011] EWCA Civ 425. The focus is on what employees reasonably understood from the employer’s words and conduct, applying ordinary contractual principles. Relevant considerations include the length, frequency and consistency of the practice, how it was communicated, the parties’ understanding and the relationship with the written contract.
3. The Tribunal’s finding was supported by evidence including communications describing the increase as guaranteed or contractual, guidance to managers and employee grievance statements. The Tribunal was entitled to read its reference to a communicated “policy” as including CSC’s belief that it was legally obliged to make the payments.
4. Even assuming that CSC’s belief that the employees had a pre-transfer contractual right was mistaken, that mistake did not prevent the later communications from objectively conveying a contractual entitlement. The employer’s subjective understanding was irrelevant. Harvela Investments Ltd v Royal Trust of Canada (C.I.) Ltd [1986] AC 207 concerned a different contractual-formation problem involving a referential bid and did not support CSC’s argument.
5. The Tribunal’s findings that the entitlement was subject to satisfactory performance, and that non-payment for that reason was not relied upon, did not undermine the conclusion. The alternative argument that the term had crystallised before the transfer was academic. The Lord Chief Justice added that reliance on the expression “custom and practice” may obscure the objective contractual inquiry.

1. Court of Appeal (Civil Division): CSC’s appeal was dismissed. Underhill LJ gave the judgment; Tomlinson LJ and the Lord Chief Justice agreed, with the Lord Chief Justice adding an observation.
2. Employment Appeal Tribunal: Langstaff P upheld the Employment Tribunal’s decision under UKEAT/0252/12/LA.
3. Employment Tribunal: The Tribunal held that the practice of paying the retail prices index increase had crystallised into an implied contractual right and that CSC had made unauthorised deductions from wages.