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Enhanced redundancy payments can become an implied contractual right over time

Posted on 27th March 2014
Case law

Between 1971 and 2006, Peacocks paid redundancy payments without applying statutory caps. In this case this practice was found to have become an implied contractual term.

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Even though the enhanced payment was not paid in every case ... there was evidence ... to conclude that it had become an implied term

Peacock Stores v Peregrine and others 2014

The facts

Between 1971 and 2012, Peacocks made a number of redundancies. In the majority of cases the statutory cap was not applied to the amount of weekly pay nor was the maximum number of years’ service that could be taken into account applied. This was not expressly set out in any policy or part of any contract of employment. The enhanced payments had been paid, however, in ‘every’ case between 1971 and 1996 and the then head of HR commented this was ‘most definitely custom and practice’. It was an approach that was ‘consistently applied’ between 1996 and 2002. Although there was a ‘dearth of specific information’ between 2002 and 2006 there was general information suggesting enhanced payments were made.

The evidence was given by a number of employees and former employees.

When redundancies were made in 2012, Mr P and others were only paid a statutory redundancy payment. They brought claims for enhanced redundancy payments, arguing that the enhanced payments were an implied contractual term of their contracts of employment.

The decision

The employment judge concluded that, ‘from the conduct of the parties ... at least by 2006 a term had been agreed between employer and employee’ that the employees would be paid an enhanced redundancy payment. This term continued to apply until it was varied by agreement, which it had not been. The claimants were entitled to the enhanced redundancy pay.

The EAT agreed with this decision. Even though the enhanced payment was not paid in every case between 1971 and 2006, there was evidence for the employment judge to conclude that it had become an implied term by this time. Peacocks had ‘evinced to the relevant employees an intention that they should enjoy that benefit as of right’. 

In practice

This case is a salutary reminder that payments, even those made on a discretionary basis, can become a contractual right over time. This will be the case whether it was intended or not and can be costly for employers. Practically, employers should think carefully every time any payment is made. If enhancements are to be paid, the discretion should be exercised each time and documented. This should minimise the risk that the payment becomes expected and a contractual right.

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