Have Redundancy Payments Become Contractual?

In Peacock Stores v Peregrine & Ors [2014] UKEAT, the Employment Appeal Tribunal considered whether an employer's history of making enhanced redundancy payments established a contractual right to enhanced payments.

Three employees of Peacock Stores (Peacock) were made redundant and brought a claim for enhanced redundancy pay.  They argued that, although there was no written redundancy pay policy, Peacock had in fact consistently paid enhanced terms to employees who were made redundant.  Typically, payments were based on the statutory regime but with the statutory caps on length of service and weekly pay removed.  The exact terms had varied from employee to employee over time, but the claimants argued that the pattern was consistent enough to create a contractual right to enhanced payments through custom and practice.  The judge agreed with the claimants.  He said that ‘there was a consistently applied and well understood policy of enhanced redundancy payments' and there was no evidence to the contrary.

This is not a particularly surprising result, although it is interesting that a contractual right was found to exist even where the enhanced terms had varied over time.  This is a reminder to employers to take care when offering enhanced redundancy terms to employees.  Unless the company already has a contractual policy, enhanced payments should only be made in exceptional circumstances to avoid allegations that they have become a contractual right.