Employers must be even handed over pay benefits

Employers have a duty of trust and confidence when it comes to offering
discretionary benefits to employees

The duty of trust and confidence is a fundamental part of the contract of
employment. In British Gas v O’Brien (2001), the EAT considered how far the
duty applies to discretionary benefits.

O’Brien was recruited by British Gas as an accountant, initially through an
employment agency. Subsequently, in early February 1996, he was taken on
directly by British Gas. He worked as a manager in the finance and
administration department of British Gas Properties until he was made redundant
on 7 August 1998.

In mid-1996, those who worked for British Gas Properties had been asked to
sign a five-year contract because it was anticipated that BG’s portfolio of
properties would have been sold by the end of that period. In order to retain
and motivate staff until that time, the staff who worked in the property
department were offered an incentive package which included a significant bonus
and a loyalty bonus. In addition, staff who remained with BG were offered an
enhanced redundancy payable as and when they became redundant.

To qualify for the incentive scheme, staff had to have completed three
months’ service, be a permanent employee and have accepted BGP’s terms and
conditions by signing a revised contract of employment by the end of July 1996.
O’Brien was not offered this revised contract because BGP did not regard him as
being employed on a permanent basis.

However, when he was made redundant, he claimed that he should have been
treated in the same way as other members of the department and therefore should
have received an enhanced redundancy payment.

In a majority decision, the Employment Tribunal, having previously ruled at
a preliminary hearing that O’Brien was employed by BGP from February 1996
onwards, upheld his claim. The majority found that O’Brien satisfied two of the
three eligibility conditions: he had completed three months’ service at the end
of the performance period and was employed on a permanent basis. The majority
ruled that the employers were under a duty to treat him in a "fair and even
handed manner" and therefore concluded that O’Brien should have received
the same enhanced redundancy payment as his colleagues.

On appeal, BGP argued that the tribunal majority were mistaken in their
conclusion that O’Brien qualified for a payment under the scheme. It was
further argued that the duty of trust and confidence did not impose a positive
obligation on the employers to make the payment to O’Brien and that they were
entitled to conclude that O’Brien did not qualify for the enhanced payment.

EAT ruling

Dismissing the appeal, the EAT ruled:

– The Employment Tribunal majority were entitled to conclude on the facts
that O’Brien was a "permanent" employee since his position was no
different from any other staff who knew that their employment was to come to an
end after five years

– The Employment Tribunal majority were entitled to conclude, both as a
matter of law and as a matter of fact, that the employers were in breach of the
duty of trust and confidence when they refused to pay an enhanced redundancy to
O’Brien since there was no basis for treating him differently from any of the
other staff

Key points

– Employers are under a positive duty to act in a manner which does not
undermine the relationship of trust and confidence when it comes to determining
whether a member of staff should or should not receive a discretionary benefit

– Where, for example, employees are eligible for enhanced redundancy
payments, non payment of the benefit will be justified only where the employee
demonstrably fails to meet the eligibility criteria

– All employees who satisfy the eligibility criteria should receive such a

By Anthony Korn, a barrister at 199 Strand Chambers

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