Enhanced redundancy payment was a contractual right: Keeley v Fosroc International Ltd

Keeley v Fosroc International Ltd,
Court of Appeal, 5 October 2006

Background

Mr Keeley was employed by Fosroc International. His contract of employment referred to Fosroc’s staff handbook, which contained a section stating: “Those employees with two or more years’ continuous service are entitled to receive an enhanced redundancy payment from the company… Details will be discussed during both collective and individual consultation.”

Keeley was made redundant, but did not receive an enhanced redundancy payment, so he brought a claim for breach of contract.

The High Court judge noted that, although the handbook referred to employees being “entitled” to a redundancy payment, the whole provision took its “colour” from the context in which it appeared. In his view, the provision was “marooned” among other provisions that were aspirational or procedural, and therefore obviously non-contractual. He, therefore, concluded that Keeley did not have a contractual right to an enhanced redundancy payment. Keeley appealed.

Decision

The Court of Appeal (CA) allowed the appeal and overturned the High Court’s decision. The fact that the redundancy payment provision used language of entitlement meant that it was appropriate to view it as a contract term.

As for the context in which the provision appeared, the CA felt that the redundancy payment clause could be looked at in isolation from the other parts of the handbook. But in any event, the CA noted that the handbook did actually contain a number of other sections that were “apt” to confer contractual benefits (eg, annual leave, parental leave and paternity leave entitlements).

The fact that the redundancy payment provision did not explain how the payment would be calculated did not concern the CA, since the company had a formula for calculating such payments.

Comment

The CA felt that redundancy provisions are, by their nature, particularly apt for incorporation into a contract of employment. Many employers refer to enhanced redundancy payments in their staff handbooks. This case serves as a reminder that if the payment is intended to be discretionary, then this should be made absolutely clear.