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17th April 2014

Inconsistency May Cost You Dearly

???????????In a recent case involving Peacock Stores, employees were able to claim far more in redundancy pay than the Stores had originally envisaged. A lack of consistency in approach to previous redundancy payments left the Stores vulnerable to, from their viewpoint, the least favourable interpretation. In particular their redundancy policy was unclear and there was lack of specific information about the actual approach that had been taken over a number of years. Unfortunately in the absence of evidence to the contrary, the Employment Tribunal concluded that employees had received enhanced payments over a number of years and therefore that all employees were entitled to regard such payments as part of their contract.

Why it is relevant?

Employers in the care sector do not usually offer enhanced redundancy but the lessons to learn from this case apply equally to any terms and conditions that could be inadvertently be acquired by custom and practice. Our experience with many employers, some large, shows us that there is often a multiplicity of policies in an organisation. They may be written at different times by different managers or owners and conflict does occur. The conflict may arise simply because a policy has been revised but not adopted, or because no-one knows which policy should apply when, or because different policies actually conflict with each other. Other risks arise from custom and practices that ignore the policies altogether!

Custom and practice

A contract of employment includes a number of components. There are statutory rights, such as entitlement to holiday or to notice, which arise whether a contract is documented in writing or not. The “contract” itself is additional to these rights and comprises whatever is agreed between the employer and employee. Collective terms of employment may arise between a recognised Trade Union (on behalf of employees) and the employer. Then there are implied components, such as the duty of care towards employees. If something commonly occurs in the employment relationship, such as a tea break, or even working long hours, then it might be implied in the contract. This is known as custom and practice. There are risks for the employer here. For example if a bonus is paid regularly time after time without ever being not paid, reduced or increased then this bonus may well become part of the contract of employment. Failing to pay an established bonus could then result in a breach of contract claim or constructive dismissal.

“Precedents” are not custom and practice, but they risk becoming so. They may be used to put pressure on the employers to be “fair”, particularly by Trade Unions; hence the importance of documenting discretionary actions and their rationale, see below.

Action points

  • Clear out policies and procedures that no longer apply - If that changes what may be deemed to be contractual then employees need, at the least, to be informed in writing (and a record kept). There may well be a requirement that employees be consulted first. Changing contractual terms can also leave you vulnerable to other claims so, if these changes are any more than a minor variation, take professional HR advice first.
  • Adopt QCS policies and procedures - This should go without saying, but do not overlook the need to make sure they will supersede earlier documentation.
  • Follow those policies and procedures - This too may seem obvious but, unsurprisingly perhaps, there is often a temptation to make decisions on an ad hoc basis. Sticking to policies and procedures is always the safest road. If they don’t meet your needs let QCS know so that they can be improved.
  • Keep your policies and procedures accessible - One reason managers don’t follow them is that managers forget the documents exist. Often the Employee Handbook is hidden away in one office and when action is required a manager takes their own course of action.
  • Document discretionary payments - You may want to exercise discretion on occasion, for example in making a settlement agreement, but make sure it is properly reached and documented. Discretion can be risky, as claims over custom and practice can arise. If appropriate, add a codicil to a policy that says certain specified matters will be decided on a case by case basis. Exercise discretion differently on different occasions to confirm this. Whatever you do, document what you have done and your rationale for it.
  • Avoid discretionary payments altogether - To avoid precedents and claims of custom and practice don’t make discretionary payments at all. Discretion often originates from the concept of the business owner wanting to reward and recognise good staff. But there are other ways of achieving the same end and often with better long term results.
  • Keep records - Two words that ring in the ears time and again. Peacock Stores lost their case because they could not establish over a number of years what practices they had actually adopted. If you cannot show written evidence of what you have done then it is all too easy for someone to allege that you did something different. They might allege it from mis-understanding or by design.

Implied contractual terms apart, Tribunals seek to see equity in treatment of employees; in practical terms that means consistency.

Malcolm Martin of Employer Solutions – QCS Expert Human Resources Contributor

*All information is correct at the time of publishing. Use of this material is subject to your acceptance of our terms and conditions.

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