Park Cakes Ltd v Shumba & Ors

A workplace practice may become a contractual term where, viewed objectively and in all the circumstances, the employer has conveyed that employees enjoy the benefit as of right. The employer’s undisclosed intention or internal decision-making is immaterial unless employees knew, or reasonably should have known, of it.

The inquiry includes the duration, frequency and consistency of payments; publicity and language used; express contractual terms; and whether the practice is equally consistent with discretion. These are guides, not a definitive checklist. Separate elements of a redundancy package may have different contractual status: an inconsistent, ex gratia lump sum does not necessarily prevent enhanced redundancy payments from becoming contractual.

Four section managers were dismissed for redundancy in 2009. They claimed that their contracts entitled them, by custom and practice, to enhanced redundancy payments and a £600 lump sum. Their written contracts did not contain such a term, but the former employer had operated a policy under which enhanced payments had commonly been made.

The Employment Tribunal dismissed the contractual claims. The Employment Appeal Tribunal, by a majority, allowed the employees’ appeal and remitted the matter to a differently constituted tribunal: UKEAT/0219/11/RN.

The employer appealed. The central issue was whether the EAT was entitled to find that the Employment Tribunal had erred in its assessment of the evidence of an alleged contractual entitlement arising from custom and practice.

1. Appeal dismissed unanimously. The Employment Appeal Tribunal was entitled to hold that the Employment Tribunal’s reasoning was materially flawed and to remit the contractual redundancy-pay claims for a fresh hearing.

2. The correct inquiry is not whether an employer’s policy has become contractual in some abstract sense. It is whether, by making a benefit available over time and in all the surrounding circumstances, the employer objectively conveyed to employees that they were entitled to it as of right. The tribunal must focus on what the employer communicated, including through conduct. Its uncommunicated intention, or its internal view that payment required a fresh decision, matters only insofar as employees knew or should reasonably have known of it.

3. Relevant considerations include the number and duration of payments, consistency of their terms, publication or widespread knowledge, the language used, express contractual provisions and whether the practice is equally explicable as discretionary. The factors drawn from Albion Automotive Ltd v Walker [2002] EWCA Civ 946 are useful but are not a definitive checklist.

4. The Employment Tribunal had failed adequately to confront the unchallenged evidence that enhanced redundancy terms, distinct from the £600, had been paid on every redundancy exercise over a lengthy period. Consistency was an important factor. The tribunal also gave insufficient reasons on the extent to which relevant policies and agreements were known to employees or their representatives.

5. The £600 payment could properly be treated separately. The evidence that it was not invariably paid and was described as ex gratia made a contractual entitlement to it unlikely. That did not make the whole claim indivisible: enhanced redundancy payments could be contractual even if the lump sum was not.

6. A fresh Employment Tribunal was appropriate. The original tribunal’s fact-finding and reasons were too abbreviated and unclear for an appellate court to determine the contractual issue itself, and the employees could reasonably lack confidence that the original tribunal would approach the matter afresh.

• Court of Appeal (Civil Division) — dismissed the employer’s appeal and upheld remittal of the contractual redundancy-pay claims to a freshly constituted Employment Tribunal: [2013] EWCA Civ 974.
• Employment Appeal Tribunal — by a majority, allowed the employees’ appeal from the Employment Tribunal and remitted the case for rehearing by a differently constituted tribunal: UKEAT/0219/11/RN.
• Employment Tribunal — upheld the unfair-dismissal claims but dismissed the claims for enhanced contractual redundancy payments in a judgment sent on 7 February 2011.