Employment Contracts and the Implication of Terms by Custom and Practice

Workers wishing to discern the extent of their entitlements need usually do no more than read their employment contracts. As one case showed, the occasions when further rights are to be implied into a contract, having been established by custom and practice, are few and far between.

The case concerned a claim by 27 ex-employees of a food company to enhanced redundancy payments. Their contracts did not expressly give them a right to such payments, but they argued that the company and others in the same group had an established track record of making redundancy payments well in excess of the statutory minimum. On that basis, they asserted that a custom and practice had developed, giving rise to legitimate expectations, and that an entitlement to enhanced payments should be implied into their contracts.

Rejecting their claims, however, an Employment Tribunal (ET) ruled that consistent past payment of enhanced redundancy by an employer over a period of time does not, in and of itself, suggest that there is a legal obligation to do the same in the future. It noted that, for a variety of reasons, some employers choose to benefit their staff over and above their statutory entitlements. Such discretionary benevolence may be driven by, amongst other things, a desire to foster a happy, more productive workforce or to encourage customer confidence or better industrial relations.

Rejecting the employees’ challenge to that outcome, the Employment Appeal Tribunal found that they had failed to prove the existence of an established custom and practice. The occasions on which the company or others in its group had paid enhanced redundancy were few in number and some years in the past. There was also a lack of consistency in the formulae used to calculate such payments. The ET’s conclusions on the evidence were plainly right.