England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		22/05/2008

The Honourable Mr. Justice McCombe:

1. In this action the Claimant, Mr. Christopher Harlow, claims a sum of £61,798.03 pursuant to his contract of employment with the Defendant, Artemis International Corporation Limited, alternatively damages in the same sum for breach of the contract, and interest. The Claimant's case is that he is entitled to an enhanced redundancy payment, over and above his statutory entitlement, by virtue of his contract of employment. The Defendant has refused to make such a payment. The claimant says that the contract included the provisions of the Defendant's "Enhanced Redundancy Policy" published to employees, either as an express or an implied term of the contract; the Defendant says that that document did not form part of the contract.
2. The Claimant was first employed by the Defendant, at that time known as Metier Management Systems Limited, in August 1980. His role then was to work as part of a team to design and develop a new generation of computer software to execute on mainframe computers; the software came to be known as Artemis 9000. In August 1983, the Claimant left the company. He rejoined in October of that year, as is noted in his latest employment letter of 31 March 1993 (paragraph 6). From that time onwards the claimant continued to work on re-design work for Artemis 9000 and related matters. By 1999 the Claimant had acquired the job title of "Artemis Chief Architect" and was working on most projects within the Artemis portfolio, including a new "flagship" product known as Artemis 7.
3. Over the years of the Claimant's employment, the Defendant company has changed hands on many occasions. In about 1985, it was acquired by Lockheed Corporation. In the early 1990s it was sold by Lockheed to Lucas Industries and was renamed Lucas Management Systems Limited. There were subsequent changes of ownership. In about 1994, the company was acquired by Computer Sciences Corporation, then by the Gores Group (a United States company), then by a Finnish company called Proha Oy in June 2000. Finally, in July 2006, the present owners, Versata Enterprises Inc. ("Versata"), a subsidiary of Trilogy Inc., acquired the Defendant.
4. The Claimant gave evidence, which I accept, that these multiple sales and acquisitions frequently led to redundancies being effected by the new owners and that staff were constantly aware, in such a climate, that redundancy was a very real prospect. The Claimant says that he felt tied to the business, particularly because of the Final Salary pension scheme, and that his redundancy terms were important to him.
5. The principal terms of the Claimant's contract of employment are to be found in a letter to him from the Defendant, then known as Lucas Management Systems, dated 31 March 1993. The letter seems to have been occasioned by the transfer of the Defendant's facilities at Ipswich to Slough. The letter sets out the Claimant's job title, his salary, normal place of work, the transfer date to the new location. Clause 5 then provides as follows:

"Until your transfer to the new location your redundancy rights will not be adversely affected, provided you indicate your change of view within that period…"

The Claimant's "start date" with the company was identified as 3 October 1983. In clause 7 there is a notice provision stating that the Claimant's employment is subject to termination on either side by one month's written notice, with an extra week's notice to the Claimant after 5 years service, up to a maximum of 12 weeks. In clause 9 the Claimant is told that he will retain his "company car eligibility and petrol for private and business use in the UK, subject to the company's current car policy at the time of signing". The offer of employment is stated to be open until 5 April 1993.

6. There then follows a paragraph of importance in this case in the following terms:

"All other terms and conditions are as detailed in the Staff Handbook as issued to you, and subject to its most recent update."

7. The Claimant's signature accepting these terms is dated 5 April 1993.
8. The Claimant's case is that the "Staff Handbook" referred to in the letter of 31 March 1993 was originally a "hard copy" manual distributed to all staff. The evidence from the Claimant's witnesses, who were employees of the Defendant at the relevant times, was that hard copy manuals were delivered to staff from time to time, but in later years these were discontinued and substituted by an intranet website, called Lotus Notes, that was treated as the handbook: see Mr. Legge's statement at paragraph 8, Mr. Russell's oral evidence and Mr. Magee's oral evidence. Similar evidence was given by Mr. Magee and Miss White The evidence was that, in the minds of these witnesses, the handbook in its electronic form included all the papers and policies comprised in the electronic folder called "HR Policies and Procedures": see e.g. Mr. Russell's and Mr. Magee's oral evidence. This folder included, they said, the Defendant's redundancy policy.
9. The Defendant's case is that the "staff handbook" in later years comprised only one of the folders included within the "HR Policies and Procedures" file on the electronic site, namely a document called "Our Employment Practices". This document did not include the redundancy policy. None of the Claimant's witnesses would accept that the staff handbook comprised only the document called "Our Employment Practices".
10. The Defendant's problem is that it has no direct evidence in support of its case in this respect. None of its witnesses became involved in the Defendant's affairs until 2006 and are quite unable to counter the evidence of the Claimant's witnesses as to what the Defendant's staff and management regarded as the "staff handbook" in the relevant period. Indeed, I was surprised to read in the witness statements of all the Defendant's witnesses a statement that they had "full knowledge of the facts of this case" when quite clearly they did not. Further, I was surprised that the Defendant's witness, Mr. Fallon, felt able to sign the statement of truth, which appears at the end of the Defence, when his knowledge of the pleaded facts was minimal. They could contribute nothing on these points (save in one small respect through Mrs. Abigail Payne – see paragraph 13) which are at the crux of this case.
11. The Defendant's assertion that the handbook comprised only the document entitled "Our Employment Practices" is founded almost entirely upon understandings loosely derived from the "due diligence" procedures on the acquisition of the Defendant in 2006. The "high water mark" of its case is a document entitled "Disclosure Schedules", which included a Schedule headed "Schedule 3.09a. Employee Benefit Plans". In relation to the United Kingdom the schedule includes a vast range of documents which, from their titles, suggest that they were documents that potentially gave rise to financial liabilities on the part of the Defendant. It included the redundancy policy. However, it also included a reference to "Our Employment Practices" followed by the words in brackets, "(Employee Handbook – Issued February 2002)". The Defendant's case is that this description must have derived from some source within the old management team and is, therefore, a pointer to what was "the handbook" at this time.
12. The evidence got nowhere near establishing how this description came to appear on the schedule. It appears to have been a document prepared by the US lawyers advising the Defendant's parent company, but we learnt no more than that.
13. The one additional piece of evidence on this issue was given by Miss Abigail Payne, a human resources manager for Trilogy, who stated that the document entitled "Our Employment Practices" was bound and exhibited separately on a bulletin board at the Defendant's offices.
14. The Defendant further argues that the document called "Our Employment Practices" is a compendious document containing numerous terms, many of them apt to be treated as contractual. However, as the Claimant submits that document also fails to include many matters that are typically found in an handbook of this type, for example disciplinary and grievance matters, holiday entitlement, maternity rights and equal opportunities matters, sickness and redundancy policies, which are to be found in other parts of the intranet folder.
15. In these circumstances, in the face of evidence of the understanding within the Defendant at the relevant time, given by witnesses which I found to be entirely reliable, I have no hesitation in finding that the Defendant's staff, including senior management like Mr. Legge, Mr. Magee and Mr. Russell, at the material times regarded the whole of the folder entitled "HR Policies and Procedures" on the Lotus Notes site as the "staff handbook" after the discontinuance of the production of the hard copy publication. In the circumstances, I consider that it is clear that for all purposes those papers included on the Lotus Notes site in that folder were the "staff handbook" for the purposes of the Claimant's contract of employment as set out in the letter of 31 March 1993.
16. Mr. Stilitz for the Defendant submitted that the only document purporting to identify the "staff handbook" was the Disclosure Schedule produced on the purchase of the Defendant by Versata. He argues that nothing else can be relied on as identifying the staff handbook. I was not sure whether this was a submission based upon the rule of law excluding parol evidence in the interpretation of an agreement. If so, I do not agree. It seems to me clear that extrinsic evidence is admissible to identify the documents to which the parties are referring to in a contract if that is not clear from the documents themselves: see e.g. Chitty on Contracts 29^th Edition Vol. 1 paragraphs 12-097 and 12-098. That is not the admission of evidence for the purpose of interpretation of the written agreement; it is merely identifying what the written agreement is. Further, it is interesting to note that in Keeley v Fosroc International Ltd. [2006] IRLR 961 the contract in issue referred to "other relevant information" being available in "company information folders". The trial judge found that the contract thereby incorporated the "staff handbook", entitled "Policies for People". That finding was not challenged in the Court of Appeal and must have been based on evidence extrinsic to the written contract. Further, in that case the formula for calculation of the redundancy payment was not included in the documents: the details had to be supplied by other evidence: see paragraph 10 of the judgments.
17. There is no doubt that, from March 2004, the HR Practices and Procedures folder on the Lotus Notes included a copy of the company's redundancy policy that prevailed from that time until the take over by Versata. It is on that policy in force at the date of his redundancy that the Claimant relies for making the claim in this action. A copy of that document is annexed to this judgment. There is no dispute that if the policy is properly to be regarded as one of the claimant's contractual terms, he is entitled to judgment for the sums claimed.
18. The next question that arises, on the Claimant's case that the Redundancy Policy constituted an express term of the contract, is whether the terms of that policy are "apt" to be contractual terms and are therefore part of the Claimant's contract: see paragraph 31 of the judgments in Keeley's case, where Auld LJ said,

"On the question of construction, as Mr Brennan acknowledged, where a contract of employment expressly incorporates an instrument such as a collective agreement or staff handbook, it does not necessarily follow that all the provisions in that instrument or document are apt to be terms of the contract. For example, some provisions, read in their context, may be declarations of an aspiration or policy falling short of a contractual undertaking; see e.g. Alexander and others v Standard Telephones and Cables Ltd. (no.2) [1991] IRLR 286, per Hobhouse J, as he then was, at paragraph 31; and Kaur v MG Rover Group Ltd [2005] IRLR 40, CA, per Keene LJ, with whom Brooke and Jonathan Parker LJJ agreed, at paragraphs 9, 31 and 32. It is necessary to consider in their respective contexts the incorporating words and the provision in question incorporated by them."

19. On this part of the case, Mr. Stilitz contended that it was relevant to take into account that the policy had been changed unilaterally to the detriment of employees on various occasions, most recently in 2004, and that the company, in dealing with employees who were to be made redundant, made a point of stipulating that enhanced redundancy payments were being made "ex gratia" rather than as a legal entitlement. This argument to my mind is similar to that which was advanced by the unsuccessful defendant in Keeley.
20. At first instance in that case the evidence had revealed "a consistent pattern of resistance by Fosroc [the Defendant employer] to acknowledging any contractual obligation to make such payments and a sometimes acquiescent or ambivalent attitude to that stance by the union and individual employees…". Auld LJ said that,

"There was considerable overlap in the judge's treatment in his judgment of such evidence – extraneous to the issue of express term but relevant and admissible to that of implied term – between the two alternative, but not always readily distinguishable, issues, one of construction of the effect of the enhanced redundancy payment provision read in context, and the other as to implication of a contractual term, 'recognised by that provision' from custom and practice."

21. In the Court of Appeal the defendant sought to justify the judge's reliance on the extraneous evidence on the express term issue. The submission (called "the anterior fact argument") was to the following effect:

"…the judge was not construing a contract, but 'part of a document in its over-all context in order to determine whether it was a contract at all'. Such an exercise, he maintained was purely one of fact and for resolution as such before embarking on the task of construction. For the purpose of resolving that issue of fact, he submitted that the judge was entitled to look at the extraneous material in so far as it was capable of shedding light on the document's contractual status."

22. Auld LJ dealt with that argument as follows:

"29. The difficulty with the 'anterior fact' argument of Mr Cox in the circumstances of this case is that it cannot stand with the terms of the two documents read together. This is not a case where Fosroc maintains that the documents do not contain the whole agreement, certainly in relation to an enhanced redundancy payment. Fosroc has not suggested any express terms additional to that in the staff hand book as to its payment or non payment. Its case is that one of the terms does not have the contractual effect that it is expressed to have, and it seeks to support such a case in part by reference to inadmissible evidence of the parties' subjective intentions. But, to respond to that case in general terms, where document A, acknowledged to have contractual effect, expressly incorporates by reference document B, and there are no other candidates for contractual contribution to the agreement, the construction of a particular provision in document B does not become a fact-finding exercise on the strength of extraneous evidence as to the true intention of the parties, any more than it would have done if the provision had originally appeared in document A. It simply becomes a matter of construction of the two documents read together.

30. In my view, the issue or issues for the judge were essentially ones of construction of an acknowledged contract, the written terms of which were not in issue, only in the instance of this provision its effect. The variously expressed views on both sides from time to time in the formulation and application of the provision are not, in my view, admissible on that issue. They are potentially relevant and admissible only in the event of the failure of Mr Keeley's case on construction of the express term, driving him to rely on his alternative case based on an implies term – or if Fosroc had pleaded some form of estoppel, which it has not."

23. In this case similarly it seems to me that on the question of construction of the documentary terms of this contract, to be found in the letter of 31 March 1993 and the "staff handbook", including, as I have found, the redundancy policy, the extraneous evidence of the parties' thoughts as to the legal effect of those terms is inadmissible. It is clear from the evidence that management felt awkward in trying to change the policy to impose less beneficial terms on short-term employees and may have been uncertain as to the legal entitlement to do so. Equally, senior management in the later years seems to have been of the view that the terms of the policy were legally binding: see e.g. Mr. Legge's e-mail to Mr. Jacops of Trilogy, dated 23 August 2006. As I read, the judgment of Auld LJ this evidence is inadmissible in construing the documents in order to determine what were the express terms of the contract.
24. The question of construction that arises is whether the terms of this policy are "apt" to be terms of the contract. I note that the fact that a staff handbook is presented as a collection of "policies" does not preclude their having contractual effect if, by their nature and language they are apt to be contractual terms: see paragraph 33 of the judgments in Keeley.
25. In Keeley's case two particular factors were found to militate in favour of a finding that the redundancy scheme was contractual in nature: first, the importance of the provision in the overall bargain, and secondly, the wording of the provision in terms of "entitlement" to the relevant payment. The Court also took into account that the enhanced redundancy payments provisions were included in the "employee benefits and rights" section of the handbook. It was noted that there were other sections in that part which included entitlements to annual leave, parental leave and paternity leave. Equally, the redundancy section gave a right to paid time off to look for alternative employment. Such matters were said to be clearly treated differently from the distinct procedural, aspirational or discretionary matters in the handbook.
26. Here there is no doubt that the redundancy provisions would be of importance in the overall bargain, as part of the remuneration package. It is to be noted that clause 5 of the letter of 31 March 1993 to Mr. Harlow also refers expressly to the preservation of his redundancy rights There is a provision in the policy itself for time off work to look for new employment and the redundancy policy is included in a part of the company's intranet site which deals with other matters which must surely have been of contractual effect, for example expenses, holiday, sickness and car entitlements. On the other hand, as Mr. Stilitz points out, the policy itself speaks of employees being "entitled" to statutory redundancy payment, whereas in respect of the enhanced payment, it only says that "Artemis will make an additional payment…". This, he submits, clearly indicates that the payment was not a matter of entitlement at all but merely of discretion for the company and an expression of "will".
27. There is no doubt in my mind that the subtle distinction made by Mr. Stilitz as to the difference in language would have passed straight over the head of any employee reading this policy. I also think that if both these provisions as to statutory entitlement and the statement that the company "will make an additional payment…" had appeared in Mr. Harlow's employment letter, they would each have been found to be apt for contractual terms: see per Auld LJ, citing Dyson LJ's point made in argument in Keeley: see paragraph 36 of the judgments. I would also add that, unlike in Keeley, this policy did include an express statement of the manner in which the payment would be calculated which would suggest to any lay reader of the document that this is what the employee could genuinely expect – no words of discretion or "ex gratia" payment appear.
28. It seems to me that the point made by Mr. Stilitz's might have had more force if the distinction in language had appeared in a closely drafted commercial agreement. The fact of the matter is that employment contracts today, such as Mr. Harlow's in this case, consist of all sorts of materials put together by human resources officers, rather than lawyers, and are designed to be read in an informal and common sense manner in the context of a relationship affecting ordinary people in their everyday lives. Close arguments arising out of nuance of language, possibly of moment in more formal contracts, seem to me to be singularly inappropriate in such a context, unless it is made clear in the document that an important point of distinction is being made.
29. I have no doubt that read together clauses 3, 5 and 6 of this redundancy policy are apt to be contractual terms and formed part of Mr. Harlow's contract with the Defendant accordingly. The fact that the company seems to have varied its practice in making redundancy payments to other employees does not, in my judgment, affect Mr. Harlow's rights to his original redundancy terms or, as he accepts, those contained in the published policy in force at the time of his redundancy. As the Employment Appeal Tribunal has held on at least two occasions, where an employer purports unilaterally to change the terms of a contract which do not immediately impinge on the employee at all (and changes in redundancy terms do not impinge until an employee is in fact made redundant) then the fact that an employee continues to work, knowing that the employer is asserting that a change has been effected, does not mean that the employee can be taken to have accepted the variation: see Solectron Scotland Ltd. v Roper [2004] IRLR 4 at 7 per Elias J and Jones v Associated Tunnelling Co. Ltd. [1981] IRLR 477, per Browne-Wilkinson J. It certainly cannot lie in the company's mouth to contend in such circumstances that it is not obliged to comply even with the term that it was asserting to be applicable at the time of the redundancy.
30. In the circumstances, I find that Mr. Harlow is entitled to judgment on his claim on the basis of an express term in his contract. That is sufficient for the decision of this case. However, as I have heard evidence and argument on the question of whether the contract would have been subject to an implied term to similar effect, I should address that point shortly.
31. Both Counsel have helpfully referred me to the "indicia" of implied terms in employment contracts to be found in Albion Automotive Ltd. v Walker [2002] EWCA Civ 946. Before turning to those points specifically I should set out the facts as I find them to be on this question.
32. It is clear that the redundancy policy comprised part of the Employee Handbook, certainly from the time of the inauguration of the Lotus Notes site and probably before that. Updates of the policy from time to time have not come to light. All we have is the document dating from March 2004, which is relied upon by the Claimant in this action. Any changes that there may have been were, on a balance of probabilities, posted to the relevant part of Lotus Notes from time to time, but they were not specifically and separately drawn to employees' attention. It is clear that for many years the company paid enhanced redundancy payments, although in particular with reference to short term employees the formula for calculating the payments varied from time to time. In the period up to March 2004, in setting out the redundant employees' severance payments, the enhanced payment was described as being "ex gratia". However, the company's management in 2004 were of the view that to alter the position of long-term employees would have led to a dispute: see Miss White's statement, paragraph 13. They regarded the policy as legally binding on the company. The particular policy in force at the date of Mr. Harlow's redundancy had been applied on about six occasions and on each occasion the company made the payment of an enhanced redundancy payment, expressed to be conditional upon the entry into a compromise agreement under which the employee waived all rights against the company, including in respect of redundancy payments. The enhanced payments appear, however, to have been calculated on the basis of the redundancy policy formula.
33. In considering the present question I must bear in mind Pill LJ's statement in Henry v London General Transport Services [2002] IRLR 472 that the relevant custom or practice must be "so universal that no workman could be supposed to have entered into the employment without looking to it as part of the contract". Equally, implied terms are found on the basis that "the courts are spelling out what both parties know and would, if asked, unhesitatingly agree to be part of the bargain": per Lord Wilberforce in Liverpool City Council v Irwin [1977] AC 239, 253F-G.
34. In the Albion case the court was concerned with entitlement to enhanced redundancy payments and whether such entitlement had arisen by custom and practice as an implied term of the employment contracts. In that case, relevant factors were identified as follows:

"(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."

35. Applying those factors here, it seems that the policy was not drawn separately and expressly to employees' attention but was published and available for all to see in writing on the website. An enhanced payments scheme was followed for many years between the early 1990s and 2006, but its terms in individual cases could be subject to variation. For some time, the employers, in making the enhanced payments in individual cases, were expressing themselves in terms that indicated that they regarded the payments as being "ex gratia" rather than of right. However, for reasons already indicated, "the nature of the communication of the policy" (paragraph 15(e) of Albion) on the website and its language was such that a contractual entitlement could reasonably be inferred. In accepting a payment in fact calculated in accordance with the policy an employee was likely to be singularly unconcerned as to whether the payment was technically "ex gratia" or of right. Initially, payments were calculated automatically by the HR department of the company when redundancies arose. After 2004 the policy was only applied when a compromise agreement was forthcoming. The nature of the communication of the policy to employees was, as I have said, the same as with many other policy documents relating to contractual terms, such as expenses, holiday and sickness entitlements. Each of the Claimants' witnesses (and it is reasonable to infer, other staff) did expect to be compensated in accordance with the redundancy policy and most others were so compensated in accordance with the policy from time to time.
36. In the circumstances, I consider that it had become the custom and practice of this company to compensate redundant employees in accordance with its enhanced redundancy policy from time to time. In relation to long-term employees there is little evidence of change in the policy, but even in the cases where changes were made over the years, I consider that the fact that such a policy would be applied in its current form would be treated as an implied term of the contracts. I consider that, to adapt Pill LJ's words, if asked, no relevant employee of the company would have considered his employment to be other than subject to the current redundancy policy. So far as necessary, I would have held that the Claimant's contract was subject to such an implied term, had I not held already that the term was an express one.
37. Accordingly, this action succeeds and there will be judgment for the Claimant.