The price of generosity

08 Apr 2014

The Employment Appeal Tribunal (EAT) recently had a look at the circumstances in which a term can be implied into a contract of employment by custom and practice. The case of Peacock Stores v Peregrine is not so much interesting because it created any new principles but more because it acts as a reminder that, inadvertently, an employer can give away rather more than they bargained for.

The case related to enhanced redundancy payments that had been made over a long period of time in respect of a succession of redundancy programmes. Was this sufficient to establish a contractual entitlement to an enhanced payment even though nothing had been written into any policies and nothing had been promised to staff? The EAT looked at the relevant authorities and reminded itself that what was important to look at was how the employer’s intentions came across. If an employer, through its conduct, appears to show an intention that employees should enjoy a benefit as of right, then that will establish an implied contractual right.

What an employer says or does therefore becomes much more important than what the employer might intend.

Courts will look at how often and over how long a period the benefits have been paid; whether the benefits were always the same; the extent to which the enhanced benefits were publicised generally; and what was said about benefits.

The same principles would apply to other benefits such as bonuses that are paid, staff discounts, or overtime payments. If an employer wants to make such payments without being at risk of creating an ongoing entitlement – they need to be very clear as to what their intentions are.

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