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14 October 2013

“Custom and practice” - reminder that not every contractual term need be in writing

A recent case (Park Cakes Limited v Shumba and Others) serves as a clear reminder that not every contractual term need be in writing and, where the individual facts support such a conclusion, obligations may develop over time as a result of ‘custom and practice’.

The case concerned four bakery workers who had worked as ‘section managers’ for Park Cakes Limited at its factory in Oldham following a relevant transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006. They were subsequently made redundant and succeeded in unfair dismissal claims before the Employment Tribunal (ET).

The claimants also contended that they had not been paid enhanced redundancy payments – i.e. payments over and above their statutory entitlements – which were due to them under the terms of their contracts of employment.

Alternatively, even if their contracts of employment did not contain an explicit provision for the enhanced redundancy payments claimed, they argued that an obligation on Park Cakes Limited to pay such sums had arisen as a result of ‘custom and practice’ and long-established policy at the factory where they worked.

The ET dismissed both of these claims. In its view, the claimants had not proved, on the balance of probabilities, that there was an implied contractual term entitling them to enhanced redundancy pay. Although such payments had been made in the past, it was not clear on how many occasions this had occurred and the ET was unable to infer that they were paid ‘without exception’ so as to conclude that they were paid automatically.

This decision was later overturned by the Employment Appeal Tribunal (EAT), which ordered a freshly constituted ET to reconsider the contractual issue at the heart of the case.

In the meantime, Park Cakes Limited challenged the EAT’s decision, insisting that the ET had been entitled to reach the conclusion that it did. In dismissing the challenge, the Court of Appeal found that there had been a material flaw in the ET’s reasoning that led to its finding that enhanced redundancy benefits had not always been paid in the past. There was unchallenged evidence that the enhanced terms had been paid on the occasion of every redundancy exercise from 1993 to 2006, which numbered a minimum of seven occasions.

After also pinpointing other unsatisfactory aspects of the ET’s decision, the Court of Appeal declined to resolve the contractual issue itself. Fairness demanded that the issue be remitted to the ET for fresh consideration and the Court made it clear that it was not expressing any view as to what should be the eventual outcome. There were points to be made on both sides of the argument and, in weighing up the evidence, the ET should give full consideration to the representations made by both parties.

For advice on employment contracts and terms, please contact Hannah King, associate in the employment law team on 01753 278659 or email employmentlaw@bpcollins.co.uk.

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