Incorporation Of Terms In An Employee Handbook

Allen and Others the TRW Systems Limited

In the recent case of Allen and Others the TRW Systems Limited, the Employment Appeal Tribunal held that enhanced redundancy terms in an employee handbook could be binding on an employer.

In this case, the employer, TRW, agreed a policy with its works counsel in 1999 for enhanced redundancy payments, which would be paid to the employees beyond the statutory minimum payments due in the event of a redundancy.

The agreement was set out in a redundancy policy which was referred to in the employee handbook and repeated in letters to the workforce on a number of occasions. However, the redundancy policy was never incorporated into the employees’ terms and conditions of employment. The handbook did not set out the terms in full, but the policy was referred to and it explained that a full copy could be obtained from the HR department.

When a subsequent redundancy exercise took place, TRW attempted to argue that the redundancy policy had not been adopted into the employees’ terms and conditions of employment and therefore they were not contractually obliged to make the enhanced payments.

The Employment Appeal Tribunal (“EAT”) held that the handbook was capable of being a source of contractual obligations, and emphasised that enhanced redundancy terms had been a widely accepted feature of remuneration packages in the past and were often found in handbooks rather than in contracts of employment.

The EAT found that if the enhanced redundancy terms had been created with the expectation that the employer would be contractually bound by it, then regardless of where they are stated, they could have contractual effect.

The fact there was additional correspondence from the employer referring to the redundancy policy and the enhanced terms gave the employees a legitimate expectation in this case that the policy formed part of their contract. Accordingly the case was remitted to a new employment tribunal to address the outstanding points.

This case shows how contractual terms are not always set out within an employee’s terms and conditions of employment, and that terms set out within a handbook should also be looked at carefully with a view to whether or not they could be seen as a promise and therefore have contractual effect.