BAILII [Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

England and Wales Court of Appeal (Civil Division) Decisions

You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Keeley v Fosroc International Ltd [2006] EWCA Civ 1277 (05 October 2006)
Cite as: [2006] EWCA Civ 1277, [2006] IRLR 961

[New search] [Context] [View without highlighting] [Printable RTF version] [Help]

Neutral Citation Number: [2006] EWCA Civ 1277
Case No: A2/2005/2938


Royal Courts of Justice
Strand, London, WC2A 2LL
05th October 2006

B e f o r e :



- and -



(Transcript of the Handed Down Judgment of
WordWave International Ltd
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7421 4040 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)


Mr Timothy Brennan QC & Mr Akash Nawbatt (instructed by Abel-Brown) for the Appellant
Mr Geoffrey Cox QC & Mr Richard Davison (instructed by Dechert Lip) for the Respondent



Crown Copyright ©

    Auld LJ:


  1. This is an appeal by Christopher Keeley from the order of HHJ Reid QC, sitting as a Judge of the High Court, on 14th November 2005, that he was not entitled to an enhanced redundancy payment on his dismissal for redundancy by the respondent, Fosroc International Limited ("Fosroc") on 7th July 2004. Mr Keeley's case before the Judge and on appeal is that his contract of employment with Fosroc expressly entitled him to an enhanced redundancy payment, alternatively that such entitlement was to be implied from custom and practice.
  2. Mr Keeley's contract of employment consisted of a written Statement of Employment Terms incorporating by reference Fosroc's Staff Handbook, entitled "Policies for People". The provision in issue was in a section under the heading "Redundancy" in the first Part of the Handbook entitled "Employee benefits and rights". It provided:
  3. "Those employees with 2 or more years continuous service are entitled to receive an enhanced redundancy payment from the Company, which is paid tax free to a limit of 30,000". Details will be discussed during both collective and individual consultation." (my emphasis)

    It is common ground that the payment referred to in that provision, which I shall call "the enhanced redundancy payment provision" consisted of two elements, first, a payment calculated by multiplying weekly salary at the date of redundancy by double the number of redundancy weeks provided by statute, and, secondly, a payment in lieu of notice on a gross basis.

  4. The Staff Handbook contained a large number of provisions capable of having contractual force. Many were expressed in terms of rights and obligations, and were typical of contracts of employment between a large employer such as Fosroc and individual members of a largely unionised workforce. Importantly, they were not to be found in any other documentation capable of having contractual force between Fosroc and each of its employees. In particular, the Statement of Mr Keeley's Employment Terms made no express reference to redundancy, unlike disciplinary and grievance procedures, the inclusion of which was required by statute. The Judge, in paragraph 29 of his judgment, found on the evidence that the Staff Handbook "was a first point of reference for any employee who had a query". And Fosroc acknowledged as much in paragraph 7 of its defence, averring:
  5. " Policies for People serves a dual purpose. It is both a personnel manual and an employee handbook. It has existed for many years and was produced by and/or for the personnel department of Fosroc['s predecessor company]. It has a loose leaf format and is updated from time to time to reflect legislative changes and changes in company policies and procedures. "
  6. The Judge, in paragraphs 44 and 50 of his judgment, concluded that the provisions in the Staff Handbook were incorporated into Mr Keeley's contract of employment insofar as they were apt to be terms of a contract of employment, but that the enhanced redundancy payment provision was not so apt. He also rejected Mr Keeley's alternative claim that he was entitled to such a payment by way of an implied term of his employment based on custom and practice, holding that no such term could be implied.
  7. The contract of employment

  8. The Statement of Mr Keeley's Employment Terms provided:
  9. "This Statement sets out the main terms of your employment with the Company. It supersedes any previous Statement of terms issued to you.
    Other relevant information may be found in the Company Information Folders, and other terms and conditions of your contract may be found in your offer letter. If there is a conflict between the Company Information Folders and this Statement, this Statement will prevail. Any subsequent amendment to terms and conditions will be set out in writing to you, or in general staff notices."
  10. Before turning to the issue whether the enhanced redundancy payment provision set out in the Staff handbook conferred on Mr Keeley an express contractual entitlement to such a payment, I should put it in context by referring briefly to its genesis and then look at the structure and content of the Handbook as a whole.
  11. Like Gaul, the Staff Handbook was divided into three Parts; they were headed respectively: "Employee benefits and rights", "Working procedures" and "Rules and disciplinary procedures". As I have mentioned, the enhanced redundancy payment provision was in the "Employee benefits and rights" Part. It was under the heading, "Redundancy", one of a number of headings dealing with different aspects of employees' rights and benefits. These were: "Annual leave", "Equal opportunities", "Grievance", "Parental leave", "Paternity leave", "Pregnancy & Maternity rights", "Redundancy", "Retirement", "Special Leave" and "Trade Union membership". The rights and benefits to employees indicated by those headings are, by their very nature, the stuff of a modern contract of employment - part of the remuneration package. They are all part of the context in which the entitlement in the Redundancy section falls to be considered.
  12. Before looking at the Redundancy section, I should mention that the second and third Parts of the Staff Handbook, "Working Procedures" and "Rules and disciplinary procedures", contain, as might be expected from the headings to their respective sections, many plainly contractual provisions. Those under "Rules and disciplinary procedures" are: "Absenteeism/timekeeping", " Car users", "Computer/Word Processor users", "Expenses", "People development", "Recruitment" and "Relocation". And, included under "Rules and disciplinary procedures", are: "Discipline", "Health & Safety", "Long service", "Security" and "Smoking".
  13. Focusing now on the Redundancy section in the "Employee benefits and rights" Part, there are provisions in it, apart from the enhanced redundancy payment provision, clearly indicative of contractual entitlement, in particular those for paid time off work to look for employment elsewhere and the right to appeal against dismissal. Its genesis lay in a draft by Fosroc's human resources manager of the day, which, after circulation to other managers and to trade union representatives for consultation and consequent amendment, was inserted in the Staff Handbook. It consists of five pages and passages under various headings. The first two passages are headed respectively "Purpose" and "Introduction". They are couched in terms of aim and intention, and are clearly directed at how, from time to time, Fosroc would determine, on a case by case basis, who should be made redundant, not at entitlement to, or the manner of calculation of, compensation for redundancy once determined:
  14. "Purpose
    It is the Company's aim to ensure any redundancies are dealt with in a fair and consistent manner, with due regard to both the needs of the Company and the well being of the redundant employee and the employees remaining in the Company.
    Whilst it is the Company's intention to develop and expand its business activities and thus provide a stable work environment and reasonable security of employment for its employees, it must ensure economic viability within an increasingly competitive business environment.
    Therefore, situations may arise which necessitate the need for reductions in numbers employed. In order to minimise the impact of such reductions, the following procedure will be adopted wherever possible.
    However, it must be recognised that where the needs of the business so dictate, the procedure will be adapted to the particular circumstances which prevail."

    Following a discussion under the third heading, "Definition", on the meaning of redundancy, the document continues, under the fourth heading, "Procedure" and its sub-headings, "Consultation", "Selection" Alternative Work", "Time off" and "Appeals", with a statement of how Fosroc would approach its task of determining redundancy when the need arose. Passages under the last two of those sub-headings contain provisions that are clearly capable of having contractual effect. Under "Time-off", it provides:

    "During their final notice period, employees will be given reasonable paid time off to look for work outside the Company." [1]

    And, the first paragraph under "Appeals" provides:

    "As with any form of dismissal, employees who have their employment terminated on grounds of redundancy will be accorded the right of appeal against dismissal."
  15. It is only on the fourth page, under the fifth heading, "Compensation", that the document, in the two sentence enhanced redundancy payment provision, deals with compensation for redundancy, expressing it in terms of an entitlement, but without referring to the method of its calculation or amount, save only to identify the maximum payable [tax free] and to indicate that the details were for collective and individual consultation. On the evidence before the Judge, the human resources manager responsible for the draft did not include the Company's redundancy calculation formula in the Staff Handbook lest departmental managers erred in calculating individual entitlements, a task to be reserved to the human resources department.
  16. That is all that the contractual documentation says about compensation for redundancy. The Redundancy section moves on under the sixth and last heading, "The people management aspects", to deal with ways of avoiding compulsory redundancies, methods of communication with affected employees and maintenance of the morale of those not affected.
  17. Having now put the enhanced redundancy payment provision in the context of the Staff Handbook as a whole, in the narrower context of the "Employee benefits and rights" Part and, in particular, the "Redundancy" section of that Part, I repeat the provision for convenience of reference:
  18. "Those employees with 2 or more years' continuous service are entitled to receive an enhanced redundancy payment from the Company, which is paid tax free to a limit of 30,000. Details will be discussed during both collective and individual consultation.
  19. A related question to that of aptness for a contractual term is whether the enhanced redundancy payment provision, in its lack of reference to the manner of calculation, say, by reference to service lengths, pay and periods of pay, and proximity to retirement, is, in any event, too uncertain to have contractual effect. Mr Geoffrey Cox QC, on behalf of Fosroc so contended, notwithstanding Fosroc's admission, in paragraph 10 of its defence, of the following formula alleged by Mr Keeley in paragraph 4 of his amended claim:
  20. " (a) for all employees an enhanced redundancy payment calculated using the following formula: current weekly salary x double the statutory redundancy weeks;
    (b) A payment in lieu of notice on a gross basis".

    On the face of it, such an admission amounts to an acknowledgement by Fosroc of both the nature and manner of quantification of the enhanced redundancy payment to be made to Mr Keeley if he was otherwise contractually entitled to it. However, Mr Cox challenged whether such a pleaded admission was sufficient to correct the uncertainty, which, he maintained, was inherent in the words of the enhanced redundancy payment provision when read in context. And he maintained that if it was so sufficient, it should be disregarded as a pleader's error, referring the Court to Fosroc's denial in paragraph 11 of its defence of any entitlement of Mr Keeley to the claimed payment, in particular in paragraph 11(d).

    "an enhanced redundancy payment is referred to but not specified. This is left to "be discussed during both collective and individual consultation;"

    The judgment

  21. Because of Mr Keeley's reliance on an implied term based on custom and practice as an alternative to his case as on express term, both parties put before the Judge a good deal of evidence on that alternative issue, evidence that, on the face of it, would have been inadmissible as an aid to construction of the alleged express term. It included evidence of consultation and negotiations over the years between, on the one hand, Fosroc and its predecessor(s) and, on the other, union representatives and individual employees, as to the formulation and subsequent operation of the provision, and of declarations and claims on either side as to its legal effect or lack of it and as to the calculation of the payment. All this evidence left the Judge with the overall impression, as he put it in paragraph 75 of his judgment, "of a fixed basic policy but subject to variation on some points", namely of payment by Fosroc of an enhanced redundancy payment on terms the same as or similar to those claimed by Mr Keeley, any substantial discrepancies being in the main due to particular circumstances of certain cases. The evidence also revealed a consistent pattern of resistance by Fosroc to acknowledging any contractual obligation to make such payments and a sometimes acquiescent or ambivalent attitude to that stance by the union and individual employees, including in earlier years Mr Keeley.
  22. There was considerable overlap in the Judge's treatment in his judgment of such evidence - extraneous to the issue of express term but relevant and admissible to that of implied term between the two alternative, but not always readily distinguishable, issues, one of construction of the effect of the enhanced redundancy payment provision read in context, and the other as to implication of a contractual term, "recognised by that provision" from custom and practice.
  23. The Judge purported to deal first in his judgment with Mr Keeley's claim based on the enhanced redundancy payment provision as an express term. His reasoning on this is to be found principally in paragraphs 44 and 50 of his judgment, and that in relation to the implied term in paragraphs 82 and 83:
  24. "44. Absent any other 'Company Information Folders' it seems to me that the terms of 'Policies for People' were incorporated into the contract insofar as they spelled out terms of employment. This however does not incorporate all the provisions of the handbook into the contract as contractual terms. Much of it is spelling out company policy rather than setting out anything that could be regarded as a contractual term."
    "50 I have to construe the words of the particular paragraph relied on in their context. Whilst this provision in the handbook is expressed not as some aspiration but as a statement of the entitlement of the employee, it is in the context of an exposition of the principles and particularly the procedures to be applied to handling redundancies. Few, if any, of the other parts of the section on redundancy would be apt for incorporation into individual contracts of employment. Although the word 'entitlement' is expressly used, the whole provision must take its colour from the context. As one of the managers pointed out during the consultation process on the policy: 'No redundancy payment can be cast in stone, and it depends on the circumstances the company finds itself in at the time'. The document very carefully avoids spelling out what the enhanced terms are to be (despite pressure from the union representatives for some formula to be included in the document). In my judgment when one looks at the document as a whole (even leaving out of account its genesis as a statement of policy produced by an HR manager rather than a document approved by the board) the document cannot be said to import into the Claimant's contract a contractual right to an enhanced redundancy payment."
    "82. The picture that the witnesses painted of their belief in a contractual entitlement to an enhanced redundancy payment was in my view coloured by hindsight and a very natural disappointment at the disappearance of something they had regarded as a certainty not only for themselves but for their colleagues. I am reinforced in that view by the obvious difficulty that the Claimant had in spelling out precisely what his legal right was ."
    "83. I have taken account of the language used: the word 'entitlement' in 'Policies for People' has been relied upon but I think in its context was used to signify no more than what the employee could expect to receive under the employer's policy and not as denoting any contractual right "
  25. As to Fosroc's reliance in any event on uncertainty, the Judge observed that it was a difficult contention because it was common ground that the sum claimed by Mr Keeley was the minimum of what the parties understood to mean by the expression "enhanced redundancy payment". He also said that, in any event, Mr Keeley would have an implied contractual entitlement to an exercise by Fosroc of a discretion along the lines indicated by this Court in Horkaluk v Cantor Fizgerald [2005] ICR 402, CA; in particular per Potter LJ, giving the judgment of the Court, at paras 46 and 47. This is how the Judge dealt with that issue in paragraph 52 of his judgment:
  26. "The Defendant submits that the wording of the compensation paragraph is vague and general. It does not say how the payment is to be enhanced. It refers to no document that would elucidate this. Indeed, it could not be cured because the wording is 'an enhanced payment' and not 'the' or 'the customary enhanced payment'. So even if they had a particular enhancement in mind, they would be unable to say that it was that which was referred to in the contract. In my judgment this is a mistaken point. If there were a standard method of enhancement (as the Claimant submits there was), the fact that it was described as 'an enhanced payment', would not make the term uncertain. The point is only valid if the Claimant is wrong in his assertion that were was a well-settled practice as to how the customary enhanced payment was to be calculated. In that event the Horkaluk point would arise. In this case however the uncertainty point is a difficult one for the Defendant to run. It has admitted that the enhanced payment referred to in Policies for People 'included' the items claimed by the Claimant and has not sought to adduce evidence that there were other items included in the 'enhanced payment' referred to. Were I satisfied that there was an express contractual term, I would be satisfied that the enhanced payments were as claimed by the Claimant."

    The Submissions

  27. Mr Timothy Brennan QC, for Mr Keeley, submitted that whether the enhanced redundancy payment provision was apt for incorporation as a contractual term was a matter of construction of the nature and wording of the provision in the context of the Staff Handbook in which it was contained. He maintained that it was clearly apt for incorporation as a contractual term because: 1) it was part of Mr Keeley's remuneration package; 2) it used clear language of entitlement; and 3) it should be construed in its context in the Staff Handbook, in particular its location in the Part of it entitled "Employee benefits and rights". He maintained that, to the extent that the Judge relied upon the extraneous material (to which I have referred in summary in paragraph 14 above), as an aid to construction of the express term, it was inadmissible for the purpose.
  28. As to absence from the enhanced redundancy payment provision of any express description of or formula for its calculation, Mr Brennan submitted, consistently with the Judge's observations in paragraph 52 of his judgment: 1) that the reference to "an enhanced redundancy payment" was sufficient identification of the means of calculation, given the evidence of clear understanding by the parties of the minimum applicable formula and Fosroc's admission in its defence of that formula; and 2) even if that were not sufficient, it would not preclude the provision from having effect so as to require Fosroc to exercise a discretion in the matter to achieve the result claimed, as in Horkulak.
  29. Mr Cox sought, on Fosroc's behalf, to justify the reliance of the Judge on the extraneous evidence in his consideration and rejection of the claimed express term as well as of the implied term. As I have said, there was considerable overlap in the Judge's treatment of and reliance on such evidence on both issues. Mr Cox acknowledged that if the Judge had been construing a contract he would have been bound by the familiar rules of law excluding resort to such evidence for the purpose of construing the express terms of a written contract. However, he submitted that the Judge was not construing a contract, but "part of a document in its over-all context in order to determine whether it was a contract at all". Such an exercise, he maintained, was purely one of fact and for resolution as such before embarking on the task of construction. For the purpose of resolving that issue of fact, he submitted that the Judge was entitled to look at extraneous material in so far as it was capable of shedding light on the document's contractual status. In making those submissions, Mr Cox relied upon the ruling of the majority of the Court of Appeal of New South Wales in Air Great Lakes PTY Ltd v KS Easter (Holdings) PTY Ltd [1985] 2 NSWLR 309, and observations of Lord Irvine of Lairg and Lord Hoffmann in Carmichael v National Power Plc [1999] ICR 1226, HL, to which I shall return.
  30. Secondly, and from that starting point, Mr Cox submitted that the enhanced redundancy payment provision, looked at, as the Judge looked at it, in the light of its genesis, application and context, was not apt to form part of an individual contract of employment. He maintained that the Judge had correctly, in paragraphs 44 and 50 of his judgment, regarded the redundancy policy as "marooned" amongst other provisions that were obviously non-contractual, drawing on reasoning of Hobhouse J, as he then was, in Alexander & Ors v Standard Telephones and Cables Ltd (No 2) [1991] IRLR 286, at para 36, that in such a circumstances clear and specific express words of incorporation contained in the primary contractual document were required to achieve incorporation:
  31. "In this context, where none of the other clauses of the collective agreement are apt to be incorporated into the individual contract of employment, it would require some cogent indication in clause 6 that it was to have a different character and to be incorporated into the individual contracts of employment. The plaintiff's submissions gain nothing from the context within which clause 6 is to be found; indeed the context strongly detracts from their case."

    Mr Cox submitted that, given the overall context of the Staff Handbook as a statement of policies and, as he maintained, the lack of any other candidate for a contractual term in the Redundancy section of it, the fact that the provision was in the Part of the Handbook headed "Employee benefits and rights" and was expressed in the language of entitlement were too flimsy a basis for disturbing the Judge's rejection of it as an express term.

  32. Thirdly, Mr Cox submitted that, even if, as a matter of construction, the redundancy policy was apt for a contractual term, it was too uncertain to have such effect because of the absence from it of any formula for calculation of the payment. As I have mentioned, he maintained that Mr Keeley's reliance on Fosroc's seeming admission in paragraph 10 of the defence of the claimed formula was misconceived because it was not an admission and that, even if it was, it was simply an error on the part of the pleader, as paragraph 11(d) of defence indicated (see paragraph 13 above). He added that, in any event, the admission was insufficient because the pleaded claim, neither in its identification of the formula nor otherwise, dealt with other relevant matters such as the length of service cap or the position of those approaching retirement.
  33. As to the Horkulak point, Mr Cox maintained that it did not assist Mr Keeley because in that case it was common ground that the provision in question was contractual in nature, albeit that it left the employer with a discretion how to implement it; here, by contrast, there were reasons in addition to uncertainty why the enhanced redundancy payment provision could have no contractual force.
  34. Conclusions

    "Anterior fact"

  35. I deal first with Mr Cox's contention that the Judge, in considering and determining whether the enhanced redundancy payment provision was an express term of Mr Keeley's contract of employment, was not construing a contract but, one of anterior fact, namely considering part of a document in its over-all context to determine whether it was a contract at all. He relied, as I have said, on Air Great Lakes and Carmichael, and also the gloss on them and other authorities in Chitty on Contracts, 9th ed, principally at 2-176 2-179, 12-095 12-098, indicating that where there is an issue of fact whether a written document contains all the express terms of a contract, parol evidence may be admitted to resolve the issue. Resolution of such an issue turns on the objective intention of the parties, which may be determined from other documents and/or oral exchanges and conduct of the parties.
  36. Both Air Great Lakes and Carmichael, from which that central proposition in the passages in Chitty was principally drawn, are distinguishable from this case in two main respects. First, in both of them the issue was whether the documentary material claimed to constitute the contract, looked at on its own, created a contractual relationship at all, not, as here, as to the construction of a term included in an admitted contract. Secondly, the documentary material before the court in each case was not in the form of a contractual instrument, as here, on the face of it containing the entirety of the material terms of the contract.
  37. In Air Great Lakes, the Court of Appeal of New South Wales held by a majority that, where a contract is alleged to be expressed in a document contemplating agreement of further terms, a court may have regard to extraneous evidence of surrounding circumstances for the purpose of determining objectively as a matter of fact whether the parties intended to enter into contractual relations.
  38. In Carmichael an exchange of letters offering and accepting employment "on a casual as required basis" was held not be an exclusive record of the parties' agreement, and that, therefore, it was permissible to determine as a matter of fact from other evidence of what the parties said and did at the time and subsequently whether there was objectively an intention to enter into a contract of employment. Lord Hoffmann, agreeing with Lord Irvine of Lairg LC, with both of whom the other Law Lords agreed, held that extraneous evidence could be admissible to establish objectively the fact of the intention of the parties, where the first instance tribuna1 is satisfied that the document or documents relied upon do not constitute the entirety of the contact.
  39. It appears that in Carmichael, their Lordships contemplated that a fact-finding tribunal is entitled to look at the extraneous material de bene esse in order to enable it to determine objectively as a primary fact whether the documents relied upon were intended to constitute the entirety of the contract and, if not, then to go on to make a further finding of fact as to whether the documentary material supplemented or qualified by the extraneous material constituted a contract of employment. In that case, as I have said, the documentary material relied upon by the claimants was an exchange of correspondence not approaching a rehearsal of the "irreducible minimum of mutual obligation necessary to create a contract of service" (see Nethermere (St Neots) Ltd v Gardiner [1984] ICR 6112, per Stephenson LJ at 623C-G and Clark v Oxfordshire Health Authority [1998] IRLR 125, per Sir Christopher Slade at 128). This is how Lord Irvine put it at 1230G-1231A:
  40. "If this appeal turned exclusively and in my judgment it does not on the true meaning and effect of the documentation , then I would hold as a matter of construction that no obligation on the [employer] to provide casual work, nor on [the employees] to undertake it, was imposed. There would therefore be an absence of that irreducible minimum of mutual obligation necessary to create a contract of service (Nethermere and Clark
    it would only be appropriate to determine the issue in these cases solely by reference to the documents if it appeared from their own terms and/or from what the parties said or did then, or subsequently, that they intended them to constitute an exclusive memorial of their relationship. The industrial tribunal must be taken to have decided that they were not so intended but constituted one, albeit important, relevant source of material from which they were entitled to infer the parties' true intention, along with the other objective inferences which could reasonably be drawn from what the parties said and did [at the time] and subsequently."
  41. The difficulty with the "anterior fact" argument of Mr Cox in the circumstances of this case is that it cannot stand with the terms of the two documents read together. This is not a case where Fosroc maintains that the documents do not contain the whole agreement, certainly in relation to an enhanced redundancy payment. Fosroc has not suggested any express terms additional to that in the Staff Handbook as to its payment or non payment. Its case is that one of the terms does not have the contractual effect that it is expressed to have, and it seeks to support such a case in part by reference to inadmissible evidence of the parties' subjective intentions. But, to respond to that case in general terms, where document A, acknowledged to have contractual effect, expressly incorporates by reference document B, and there are no other candidates for contractual contribution to the agreement, the construction of a particular provision in document B does not become a fact-finding exercise on the strength of extraneous evidence as to the true intention of the parties, any more than it would have done if the provision had originally appeared in document A. It simply becomes a matter of construction of the two documents read together.
  42. In my view, the issue or issues for the Judge were essentially ones of construction of an acknowledged contract, the written terms of which were not in issue, only in the instance of this provision its effect. The variously expressed views on both sides from time to time in the formulation and application of the provision are not, in my view, admissible on that issue. They are potentially relevant and admissible only in the event of the failure of Mr Keeley's case on construction of the express term, driving him to rely on his alternative case based on an implied term - or if Fosroc had pleaded some form of estoppel, which it has not.
  43. Construction

  44. On the question of construction, as Mr Brennan acknowledged, where a contract of employment expressly incorporates an instrument such as a collective agreement or staff handbook, it does not necessarily follow that all the provisions in that instrument or document are apt to be terms of the contract. For example, some provisions, read in their context, may be declarations of an aspiration or policy falling short of a contractual undertaking; see e.g. Alexander & Ors v Standard Telephones and Cables Ltd (No 2) [1991] IRLR 286, per Hobhouse J, as he then was, at para 31; and Kaur v MG Rover Group Ltd [2005] IRLR 40, CA, per Keene LJ, with whom Brooke and Jonathan Parker LJJ agreed, at paras 9, 31 and 32. It is necessary to consider in their respective contexts the incorporating words and the provision in question incorporated by them.
  45. In Alexander, the issue was whether the primary contract, in expressly incorporating the provisions of a collective agreement, included a provision in that agreement as to the procedure for selection for redundancy, breach of which entitled the claimants to damages for wrongful dismissal by reason of redundancy. Hobhouse J, in the passage at paragraph 31 of his judgment, (applied by this Court in Kaur at paragraphs 31 and 32), summarised the appropriate principles:
  46. " The relevant contract is that between the individual employee and his employer; it is the contractual intention of those two parties which must be ascertained. In so far as that intention is to be found in a written document, that document must be construed on ordinary contractual principles. In so far as there is no such document or that document is not complete or conclusive, their contractual intention has to be ascertained by inference from the other available material including collective agreements. The fact that another document is not itself contractual does no prevent it from being incorporated into the contract if that intention is shown as between the employer and the individual employees. Where a document is expressly incorporated by general words it is still necessary to consider, in conjunction with words of incorporation, whether any particular part of that document is apt to be a term of the contract; if it is inapt, the correct construction of the contract may be that it is not a term of the contract. Where it is not a case of express incorporation, but a matter of inferring the contractual intent, the character of the document and the relevant part of it and whether it is apt to form part of the individual contract is central to the decision whether or not the inference should be drawn."
  47. Equally, here, the fact that the Staff Handbook was presented as a collection of "policies" does not preclude their having contractual effect if, by their nature and language they are apt to be contractual terms, as clearly many were in the "Employee benefits and rights" Part of the Handbook, incorporating in that way by reference what was not expressly referred to or detailed in the Statement of Employment Terms.
  48. Highly relevant, in any consideration, contextual or otherwise, of an "incorporated" provision in an employment contract, is the importance of the provision to the over-all bargain, here, the employee's remuneration package what he undertook to work for. A provision of that sort, even if couched in terms of information or explanation, or expressed in discretionary terms, may be still be apt for construction as a term of his contract (providing it is not in conflict with other contractual provisions); see e.g. Horkulak; and cf. Briscoe v Lubrizol [2002] IRLR 607, per Potter LJ at para 14, as he then was, and with whom on this point Ward LJ and Bodey J agreed. Provision for redundancy, notwithstanding statutory entitlement, is now a widely accepted feature of an employee's remuneration package and as such, is particularly apt for incorporation by reference, as the Judge recognised in the following passage in paragraph 45 of his judgment:
  49. "The payment of enhanced redundancy payments was a well-known fact of employment life in the group and, given the frequency with which redundancy exercises were conducted, clearly an important factor in particular to higher paid and longer serving employees.".
  50. Equally, if not more important, is the wording of a provision under question in an incorporated document containing contractual terms. If put in clear terms of entitlement, it may have a life of its own, not to be snubbed out by context immediate or distant in the document of which it forms part. Where the wording of the provision, read on its own, is clearly of a contractual nature and not contradicted by any other provision in the documentary material constituting the contract, context is not all.
  51. With respect, the Judge, in paragraph 50 of his judgment (see paragraph 16 above), seems to have overlooked, or given insufficient weight to this fundamental starting point in considering the aptness of the enhanced redundancy payment provision in its own right to be a contractual term. If apt by the nature of the subject matter and on its own wording, there was no doubt that it was incorporated by reference, along with other provisions in the Staff Handbook that were similarly apt. As Dyson LJ noted in the course of Mr Brennan's submissions, a good way of testing Fosroc's case and the Judge's reasoning on construction, is to ask whether, and subject to the issue of certainty, if the redundancy policy had been set out in identical terms in Mr Keeley's Statement of Employment Terms, it could seriously have been argued as a matter of construction that it was not apt for a contractual term and, on that account, not part of the contract.
  52. The Judge's starting point in paragraph 50, after acknowledging that the provision was "expressed as a statement of the entitlement of the employee", was to move straight to the context, and to do so too narrowly and also inaccurately, by observing that "[f]ew, if any, of the other parts of the section on redundancy would be apt for incorporation into individual contracts of employment". He then concluded the matter without more by saying "..[a]lthough the word "entitlement" is expressly used, the whole provision must take its colour from the context". What context? Quite apart from his mistaken dismissal of the Redundancy section as devoid of any contextual support, he seemingly did not consider or refer to the many provisions in the wider context of the Staff Handbook, in particular, in the "Employee benefits and rights" Part in which the "Redundancy" section was located, which were clearly apt for contractual terms. Nor did he explain why such context as that to which he did refer, overrode the plain words of entitlement in the provision itself. In addition, for the Judge to pray in aid on this issue in paragraph 50 the absence of identification of any payment terms, stands ill with his reasoning two paragraphs later, at paragraph 52 (see paragraph 17 above), that lack of an express formula for calculation of the payment would not of itself have defeated the claim.
  53. In my view, the enhanced redundancy payment provision, in its language of entitlement and in its inclusion in the "Employee Benefits and Rights" part of the Staff Handbook, are strong pointers that it was intended to have contractual effect. As to the other sections in that Part of the Staff Handbook, for example those providing entitlements in respect of annual leave, parental leave and paternity leave, they too are part of the context in which the entitlement in the Redundancy section fall to be considered. And, as I have pointed out, in the Redundancy section itself, the provisions for paid time off to look for work elsewhere and the right to appeal against dismissal are close supporting context for concluding that statements of entitlement in that section were intended to have contractual effect. Such matters were clearly to be treated differently from the quite distinct procedural, aspirational or discretionary matters in the section going to the selection of employees for redundancy. There was no issue as to Mr Keeley's redundancy or as to his entitlement, in consequence, to statutory redundancy pay, nor as to the calculation of an enhanced redundancy payment if contractually due to him. In the circumstances, the reliance by Mr Cox on the Judge's perception that "few, if any, of the other parts of the section on redundancy would be apt for incorporation into individual contracts of employment" is not to the point.
  54. Uncertainty as to formula

  55. I consider that, for the reasons given by the Judge in paragraph 52 of his judgment (see paragraph 17 above), once the Court is satisfied as a matter of construction, that the enhanced redundancy payment provision is apt for a contractual term, there is no problem of uncertainty in relation to its calculation from time to time and on a case by case basis. The provision, in its use of the expression "enhanced redundancy payment" identifies by reference the means by which, when such payments fall to be paid, they are calculable, as demonstrated by Fosroc's acknowledgement in its defence of the formula finally relied upon by Mr Keeley.
  56. Even if, which is not contended by Fosroc, the formula and/or amount when paid were entirely a matter for its discretion, Horkulak shows how far the courts will go to give practical effect to the reality of the bargain struck between employer and employee in an exchange of reward for labour, as a matter of construction of express terms or by way of implication. In that case, the issue turned on the effect of an express contractual provision for a discretionary loyalty bonus, the amount of which was to be agreed between the employer and the employee. The employer maintained that, as the contract expressly provided for payment as a matter of discretion and not of entitlement, the employer had no obligation to pay or even consider paying it. The Court held, not only that the provision should be read as providing a contractual benefit to the employee, but also, notwithstanding the lack of any expressed formula or point of reference for its calculation, as obliging the employer to assess rationally and fairly, and to pay, a sum due to the employee under the provision. In the case before us, as Mr Brennan observed, the claim, based on an entitlement by reference to an acknowledged formula, is much stronger.
  57. The fact that the enhanced redundancy payment provision is incorporated in the Statement of Employment Terms, the primary contractual document, by reference rather than set out in it, and that the formula may change from time to time are not arguments against contractual effect. They are in favour of it, where the machinery, as here, by express reference in the Staff Handbook to "an enhanced redundancy payment", identifies and enables recourse to the formula in force at the time when the need to calculate each such payment arises. As Potter LJ observed in Briscoe, at paragraph 14, frequently in the employment context, the language of a handbook, even if (unlike this case) couched in terms of information and explanation, will be construed as giving rise to binding obligations between employer and employee:
  58. "14. It is of course frequently the case that details of an employee's contract and the benefit to which he is entitled by virtue of his employment are largely to be found in a handbook For this purpose, and depending upon the circumstances, incorporation by express reference in the statutory particulars of employment will not usually be required by the court. Again, it is frequently the case that, in the employment context, the language of a handbook, while couched in terms of information and explanation, will be construed as giving rise to binding legal obligations as between employer and employee. "
  59. The enhanced redundancy provision, in its use of the word "entitled" and in its location in the "Employee benefits and rights" Part of the Staff Handbook, clearly refers to a legal right. Although it is conditional on its "details" being found elsewhere, the irreducible minimum of them, as I have said, is to be found in Fosroc's admission in its defence of the formula on which Mr Keeley finally relied. The issue is enhanced payment or no all or nothing. Thus, whatever the economic uncertainties facing large employers militating against a conclusion that they would bind themselves irrevocably to a specific formula for calculation or amount of redundancy payment, the machinery of contract may, as here, provide a safety valve in enabling those matters to be resolved on an individual basis from time to time by reference to an identifiable process, as it did here in the use of the term "an enhanced redundancy payment".
  60. Accordingly, I am of the view that, on the primary case of Mr Keeley in reliance on an express term: 1) the issue for the Judge and this Court was purely one of construction of Mr Keeley's Statement of Employment Terms and the Staff Handbook, in particular, the enhanced redundancy payment provision, when read together, not one of fact as to whether the parties, in respect of that provision, intended to enter into contractual relations; 2) as a matter of construction, the enhanced redundancy payment provision was apt to be a contractual term; and 3) as part of that conclusion, the enhanced redundancy payment provision was not vitiated by uncertainty, since it identified the means of reference by which the appropriate payment would be calculable when the time came.
  61. Accordingly, I do not consider it necessary to go on to consider Mr Keeley's alternative claim based on a term to be implied from custom and practice, and would allow his appeal.
  62. Lord Justice Dyson:

  63. I agree.
  64. Sir Martin Nourse:

  65. I also agree.

Note 1   A provision for which there is some statutory under-pinning .]    [Back]

BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII