The Court of Appeal in Park Cakes Ltd v Shumba & Ors reviewed the law and provided some useful guidance on whether terms are implied by custom and practice.

The background

Four section managers at Park Cakes claimed enhanced redundancy payments due to custom and practice implying them as a legal right. The Court of Appeal held that the tribunal failed to make the only finding available to it on whether Park Cakes had always paid enhanced redundancy payments. In doing so and generally, the tribunal did not fully consider the factors for whether the payments were implied by custom and practice.

Getting the question right

The Court of Appeal stressed that the tribunal needed to consider:

"Whether, by his conduct in making available a particular benefit to employees over a period, in the context of all the surrounding circumstances, the employer has evinced to the relevant employees an intention that they should enjoy that benefit as of right. If so, the benefit forms part of the remuneration which is offered to the employee for his work (or, perhaps more accurately in most cases, his willingness to work), and the employee works on that basis."

The emphasis must be on what, objectively, the employer has communicated to its employee. The employer’s actual intention is "irrelevant" unless the employees knew of that intention (and it therefore constitutes part of the evidence for a reasonable observer).

Factors to be considered

Determining whether an enhanced redundancy term is implied is not a straight-forward excise, not least because of the breadth of circumstances in which payments are made. The Court of Appeal, however, helpfully distilled the test down to six factors:

  • On how many occasions, and over how long a period, the benefits in question have been paid;
  • Whether the benefits are always the same;
  • The extent to which the enhanced benefits are publicised generally;
  • How the terms are described;
  • What is said in the express contract; and
  • Equivocalness – whether the payment was a matter of discretion or a legal right.

The Tribunal to consider the facts

Ultimately, the Court of Appeal was, despite setting out the guidelines on implied terms, unable to come to a decision on whether the arrangement under consideration was contractual; there were simply too many outstanding evidential issues for the court to make a finding. The claim was remitted to a fresh Tribunal.

Conclusions

Once again, this case shows, when in implying terms by custom and practice, the evidence can cause real problems, particularly about the employer’s communicated position. It also provides a salutary reminder that for the employer words and actions, not unspoken intentions, are critical. Clear communications from the employer (whether under the employment contract, policy or general notices) that the term is not contractual remains key.