England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM AN EMPLOYMENT APPEAL TRIBUNAL
(Her Honour Judge Wakefield)
BAILII: [2001] UKEAT 415_00_1210

		Royal Courts of Justice Strand London WC2
		21st June 2002

1. LORD JUSTICE PETER GIBSON: This is an appeal by the employer, Albion Automotive Ltd ("Albion"), from the order made by the Employment Appeal Tribunal on 12th October 2001, dismissing Albion's appeal from the decision of an Employment Tribunal sitting in Manchester. By that decision sent to the parties on 2nd February 2000 the Employment Tribunal held that 22 employees ("the Employees") of Albion who had been made redundant were contractually entitled to the benefit of enhanced redundancy terms in lieu of their statutory redundancy entitlement. The specific issue determined by the Employment Tribunal in favour of the Employees was whether by custom and practice there was a term of the Employees' contracts of employment that they would be entitled to such enhanced redundancy terms. The EAT refused permission to appeal, but such permission was granted by Pill LJ.
2. The background to this dispute is as follows. The employees were all employed at Albion's Farington site. The site was bought by Volvo in March 1989. Albion bought the site in October 1995 and took over the undertaking, including the work force employed there. From 1990 to 1994 there were six redundancy exercises carried out at the site. The first involved the closure of what was called the BX facility. Enhanced redundancy terms were the subject of extensive negotiations against a background of industrial and political action, and the terms which were accorded to the redundant employees were found to have been authorised by the parent company. Those terms were that each redundant employee would receive 12 weeks pay at £1,000 per annum of service. 292 employees were made redundant on those terms. Subsequent redundancy exercises involving 177, 200, 70, 32 and 12 employees respectively were carried out with the redundant employees receiving the BX terms. Two other redundancy exercises in that period were announced on the same terms but in the event did not proceed.
3. In 1996 after Albion acquired the site five employees were made redundant but did not receive the enhanced redundancy terms. They, or some of them, were advised to take legal action but did not do so.
4. The redundancy exercise involving the Employees commenced in January 1999. For the Employees their representative stated to Albion that he expected what he called "the contractual redundancy entitlement" to be applied. But for Albion it was indicated that only the statutory redundancy entitlement applied.
5. None of the Employees had a written contract of employment, nor a statement of his terms and conditions of employment. The collective agreements, negotiated each year with the trade unions, are recorded in writing, but the redundancy terms had never formed part of the annual negotiations, and so the collective agreements say nothing on the issue. All the Employees commenced their employment prior to 1990.
6. It was agreed before the Employment Tribunal by the legal representatives of both sides that the main authorities on whether a contractual entitlement arose by reason of custom and practice were two EAT decisions.
7. In Duke v Reliant Systems Ltd [1982] ICR 449 the question for the EAT was whether a normal retiring age had been established for the particular employment, and a question arose whether any policy in regard to a retiring age had been communicated to employees or whether there was evidence of any universal practice to that effect. Browne-Wilkinson J giving the judgment of the EAT said at page 452:

"A policy adopted by management unilaterally cannot become a term of the employee's contracts on the grounds that it is an established custom and practice unless it is shown that the policy has been drawn to the attention of the employees or has been followed without exception for a substantial period."

8. In Quinn v Calder Industrial Materials Ltd [1996] IRLR 126 the EAT was faced with a question similar to that in the present case, whether there was a contractual right to enhance redundancy payments. The EAT, Lord Coulsfield presiding, applied the reasoning in Duke, saying at page 128, paragraph 7:

"In a case such as the present, the factors to which Browne-Wilkinson J referred are likely to be among the most important circumstances to be taken into account, but they have to be taken into account along with all the other circumstances of the case. Thus, for example, in our view, the question is not whether the period for which a policy has been followed is `substantial' in some abstract sense, but whether, in relation to the other circumstances, it is sufficient to support the inference that that policy has achieved the status of a contractual term. Again, with regard to communication, the question seems to us to be not so much whether the policy has been made or become known directly to the employees or through intermediaries, but whether the circumstances in which it was made or has become known support the inference that the employers intended to become contractually bound by it."

9. The Employment Tribunal expressed their conclusion that the enhanced redundancy terms whereby redundant employees would receive £1,000 for each complete year of service and £90 for each further completed month of service had become a term of the Employees' contracts of employment on the ground that it was an established custom and practice. Accordingly the Employment Tribunal held that Albion was in breach of contract.
10. In reaching their conclusion, the Employment Tribunal said this:

"12.In deciding whether the enhanced redundancy terms have become a term of the applicant's contract of employment on the grounds that it is an established custom and practice we have had regard to all of the relevant evidence in this case. However, we consider it appropriate to highlight certain issues which we have had particular regard to, namely:-

(a)we are satisfied that the availability of the enhanced redundancy terms has been drawn to the attention of the employees by the company in writing and that both the policy and the terms thereof were well known to all employees at Farington.

(b)we are satisfied that the policy has been followed for a substantial period of time. Clearly it was followed in all the redundancy exercises which took place from 1990 to 1994. During this period approximately 750 employees or 75% of the Farington workforce had been made redundant and all 750 employees have been able to take advantage of the enhanced redundancy terms. The only time in which the policy was not followed involved the dismissal of 5 employees in 1996.

(c)the policy was followed in respect of 6 redundancy exercises and it was proposed that it would be followed in respect of two other redundancy exercises which were subsequently cancelled.

(d)originally the enhanced redundancy terms were to be limited to those employees who were made redundant by reason of the closure of the BX facility. However the policy was later applied to all employees who were made redundant over the next four years. Clearly the terms of the policy had been consistently applied and all employees who were made redundant between 1990 and 1994 were allowed to take advantage of the enhanced redundancy terms.

(e)we are satisfied that the policy was first introduced following a period of protracted negotiations with the recognised trade unions. However, in later exercises the enhanced terms were simply applied or proposed to be applied by the company without the requirement of further reference to, or negotiations with, the trade unions.

(f)we are satisfied that all employees including the applicants had a reasonable expectation that the enhanced redundancy payments would be made.

(g)we are satisfied that the terms of the policy had clearly been reduced to writing. Indeed the terms are set out by the company at divider 137m of the bundle and the terms are also set out in a document (which has probably been prepared on behalf of the unions) and which can be seen at divider 153 of the bundles.

(h)although there is no evidence that any employees actually entered into employment on the faith of an expectation that enhanced terms would be applied we consider that this factor is of little relevance, particularly because all of the applicants commenced their employment before 1990 when the enhanced terms were introduced.

(i)we are satisfied that on some occasions and in particular in relation to the later exercises that the payment of the enhanced redundancy terms, as opposed to the redundancy exercises themselves, was not specifically authorised. Indeed, we find that in relation to at least the last five exercises or proposed exercises the payment of enhanced redundancy terms became automatic or virtually automatic from the company's point of view. However even if we had found that specific authorisation had taken place on every occasion this would not have caused us to reach a different decision having regard to all of the other factors in this case.

(j)we are satisfied that the nature of the communication of the policy to the employees supports the inference that the company intended to be contractually bound by it. For example, in the May 1993 newsletter it is stated that `the redundancy terms which will apply to these redundancies are those which are currently in operation'. We consider that by reason of the fact that the company used such words it is proper for us to infer that the company intended to be contractually bound by the enhanced redundancy terms policy. Indeed we find that the evidence as a whole can properly lead us to infer that in respect of at least the last five redundancy or proposed redundancy exercises from September 1991 to December 1993 the company intended to be contractually bound by the enhanced redundancy terms policy."

11. Before the EAT Mr Truscot argued for Albion that no fact was found from which an intention could properly be inferred that Albion committed itself to paying the enhanced redundancy terms on future occasions as opposed to the particular occasion of each of the six redundancy exercises between 1990 and 1994. The EAT supported the Employment Tribunal's conclusion that the employer of the employees had demonstrated an intention to be bound such that a term to that effect was incorporated in the contract of employment.
12. Mr Truscot before us accepts the facts found by the Employment Tribunal, but he challenges the correctness of the decisions of the Employment Tribunal and the EAT. He submits that in order to infer contractual intent on the part of an employer to pay enhanced payment to its employees not made redundant there must be some evidence in addition to the actings of the employer in relation to previous redundancy exercises to support the inference that the employer intended to be contractually bound to make such payments on future redundancies. He submits that the Employment Tribunal erred in law in its approach, because he says nothing was said or done by Albion which showed an intention to be bound contractually.
13. Mr Brennan QC for the employees submits that that argument is wrong. He argues that in the present case there was ample evidence, including contemporaneous documentation emanating from the employer, which is consistent only with an agreed formula being in existence for compensating those who lost their job by reason of redundancy. He says that on several occasions in communications to the entire work force reference was made to terms currently in operation. That, he says, can only mean that the terms continued to apply to those not previously made redundant or not in the course of being made redundant. He says that from the words used the Employment Tribunal were entitled to infer that the enhanced terms would continue to apply to employees if they were made redundant.
14. We were shown by Mr Truscot two examples of the use of the description "currently in operation" in relation to the BX terms in a communication to employees. As he rightly pointed out, on one of those occasions a previous redundancy exercise was in fact continuing in operation, so that the words "currently in operation" properly applied because of that fact. But he accepts that in a later communication in May 1993 when the same words were used that the same point could not be made.
15. Mr Brennan submitted that in the light of Duke and Quinn there are likely to be a number of factors important in assessing whether a policy originally produced by management unilaterally has acquired contractual status. He suggests that in the present case the relevant factors included:

(a) whether the policy was drawn to the attention of employees;

(b) whether it was followed without exception for a substantial period;

(c) the number of occasions on which it was followed;

(d) whether payments were made automatically;

(e) whether the nature of communication of the policy supported the inference that the employers intended to be contractually bound;

(f) whether the policy was adopted by agreement;

(g) whether employees had a reasonable expectation that the enhanced payment would be made;

(h) whether terms were incorporated in a written agreement;

(i) whether the terms were consistently applied.

16. Mr Brennan highlighted a number of facts which had been found by the Employment Tribunal or which were otherwise in the evidence put before the Employment Tribunal:

(1) The terms negotiated in 1990 were the outcome of extensive, indeed high profile, negotiations, and it is likely that the terms received the approval of the parent company, as the Tribunal found.

(2) The terms were subsequently applied to further redundancy exercises with little or no consultation with the parent company, as the Tribunal found.

(3) The availability of the enhanced redundancy terms had been drawn by the employer to the attention of all the employees in writing at the time of each redundancy exercise, and the terms of the policy were well-known to all employees at the Farington site, again as the Tribunal found.

(4) The policy had been followed for an extensive period of time and affected 750 employees, amounting to three quarters of the work force.

(5)The policy was followed for six redundancy exercises, and it was intended to be followed in two further exercises which had been announced. Payment of enhanced terms was found to be automatic, or virtually automatic, from the employer's viewpoint.

(6) All employees had a reasonable expectation that the enhanced redundancy payments would be made.

(7) The policy was reduced to writing, both by the trade unions for employees at the site as well as by the employer.

(8) The employees and PSV, to whom on a redundancy exercise announced on 10th October 1992 redundant employees would be transferred, had an actual understanding that there were enhanced redundancy terms of contractual effect.

(9) The contemporaneous documentation from the employer by referring to terms currently in operation were consistent with an agreed formula being in existence contractually for compensating employees made redundant.

17. Mr Brennan points in particular to the finding in paragraph 12(j) (to which I have referred) in the Employment Tribunal decision that the employer intended to be contractually bound. That, he says, was a conclusion open to the Tribunal, as the tribunal of fact, as an inference from the primary facts.
18. I have set out Mr Brennan's helpful arguments in some detail because I am in agreement with them. In my judgment there is no error of law in the Employment Tribunal's decision such as would allow the EAT or this court to interfere. The conclusions of fact, including the inferences from the primary facts, were well open to the Employment Tribunal on the material before them. They had particular regard to the question whether or not it could properly be inferred that the employer was to be contractually bound. The tribunal of fact having reached the conclusion that the employer was bound, in my judgment there is no basis on which it would be right to interfere with that conclusion.
19. I for my part would dismiss this appeal.
20. LORD JUSTICE POTTER: I agree.
21. SIR MURRAY STUART-SMITH: I also agree.
Order: Appeal dismissed. We lift the stay imposed by Pill LJ and summarily assess the costs at £13,017.83, as requested by the successful respondent.