Settlement agreements and redundancy

Employees, who are made redundant, providing they meet the minimum criteria, are entitled to statutory redundancy payment.

However, some employees may be contractually entitled to receive more than their statutory redundancy pay due to the terms of their contract of employment. Some employees have an express entitlement to contractually enhanced redundancy pay.

Certain businesses due to the sectors in which they operate enter into industry-wide collective agreements containing enhanced redundancy payment terms for the effected employees. This is then incorporated into their employment contracts by reference.

Alternatively, other employees may have an implied entitlement to receive more than a statutory redundancy payment as a result of their employer’s conduct. Where a custom and practice of making enhanced redundancy payments is being consistently followed either by the employer's business this can give rise to a right to receive an enhanced redundancy payment. As a result of following such custom or practice an employer may create an expectation that it will do so in the future.

To constitute a binding implied term, a custom or practice must be: "Reasonable, notorious and certain". Increasingly this historic authority is being deviated from and Tribunals are asking the question whether the employer's conduct, viewed objectively, should reasonably be understood by the employees as indicating an automatic entitlement to an enhanced payment.

By the mere usage of the phrases “discretionary” or “ex gratia” employers are unable to defeat a claim for a term being implied into a contract by custom and practice. It is often not until an employment relationship comes to an end that arguments surface over what constitutes custom and practice. In the case of Peacock Stores v Peregrine, the parties could not agree the terms of an enhanced redundancy package evidenced and did not enter into a settlement agreement.

Rather the Claimant, Peregrine, brought a claim and was successful. The Employment Tribunal agreed that there was a consistently applied and well understood policy of paying enhanced redundancy payments. Despite there only being ‘generalised evidence’ that statutory redundancy caps were not applied to redundancy payments, there was still sufficient evidence to prove a custom and practice.

If you believe you are at risk of redundancy and entitled to an enhanced redundancy package, please do not hesitate to contact the team.

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