Redundancy Payments Through Custom and Practice

In Shumba & others v Park Cakes Ltd [2013] EWCA Civ 974, the Court of Appeal gave some useful guidance on how to determine whether an implied contractual obligation to make redundancy payments has arisen through custom and practice.

The Claimants, who had been subject to a TUPE transfer, were dismissed for redundancy by their new employer.  They alleged that they had an implied right to an enhanced redundancy payment which had arisen through custom and practice.  The Court of Appeal said that when considering whether a contractual right to enhanced redundancy payments had arisen through custom and practice, the factors to be considered included: (i) on how many occasions and over what period they have been made; (ii) whether they have always been on the same terms; (iii) the extent to which they have been publicised; (iv) how they have been described (e.g. as "ex gratia" payments); (v) what the employment contract expressly stated; and (vi) whether the employer's conduct, viewed objectively, conveyed its intention to be bound.  In the current case, the Tribunal had failed to consider the fact that enhanced redundancy benefits had been paid on at least seven occasions in the past and so the case was remitted to a fresh Tribunal. 

Employers should consider this guidance carefully when making enhanced redundancy payments if they wish to avoid them acquiring contractual status.  It is also important, when there has been a TUPE transfer, for an incoming employer to ask the outgoing employer for full details of its past practices in respect of such payments.