Incorporation of Contractual Terms

[Thanks to Dr John McMullen of Wrigleys Solicitors LLP for preparing this case summary]

Can liability for enhanced redundancy payments arise from a policy in an employee handbook?

Yes, says the EAT, on the facts in Allen v TRW Systems.

In 1999 TRW agreed a policy with its works council for enhanced redundancy payments. The promise was subsequently added to the employee handbook and repeated in letters to the workforce on a number of occasions thereafter. The employment tribunal held, however, that because the policy was not referred to in the written statement of terms, it was not incorporated into employment contracts.

The EAT overturned the tribunal decision. In Keeley v Fosroc International the Court of Appeal held that if provisions about severance payments were apt for incorporation it was no obstacle in principle that they were in a handbook, as opposed to a statement of terms.

The tribunal was therefore wrong in this case to ignore the works council agreement, the express promise in the employee handbook, and the subsequent repeated promises in correspondence, in determining whether the enhanced redundancy payments had been incorporated into the contract of employment.  As the EAT put it: "how can an employer, having acted in this way, sensibly deny that employees could have a reasonable expectation that payment would be made in accordance with the promise?"

The case was remitted to a differently constituted employment tribunal to address these matters.