Keeley v Fosroc International Ltd

Factual and Procedural Background

This appeal concerns the entitlement of the Appellant to an enhanced redundancy payment following his dismissal for redundancy by the Appellee on 7th July 2004. The Appellant claimed that his contract of employment expressly entitled him to such a payment, or alternatively, that such an entitlement arose by implication from custom and practice.

The Appellant’s contract included a written Statement of Employment Terms incorporating the Appellee’s Staff Handbook titled "Policies for People". The disputed provision was located in the "Redundancy" section of the Handbook’s first part, "Employee benefits and rights". It stated that employees with two or more years’ continuous service were entitled to an enhanced redundancy payment, paid tax free up to a limit of £30,000, with details to be discussed during consultation.

It was agreed that the enhanced redundancy payment consisted of two elements: a payment calculated as double the statutory redundancy weeks multiplied by weekly salary, and a payment in lieu of notice on a gross basis.

The Staff Handbook contained many provisions capable of contractual force, expressed as rights and obligations typical in contracts with a large, unionised employer. The Statement of Employment Terms did not expressly reference redundancy, unlike disciplinary and grievance procedures which were statutorily required. The Judge found the Handbook was the primary reference for employees with queries and acknowledged its dual purpose as a personnel manual and employee handbook, updated periodically.

The Judge concluded that while many provisions of the Handbook were incorporated into the contract insofar as they were apt to be contractual terms, the enhanced redundancy payment provision was not apt for incorporation. The alternative claim that such entitlement arose by implication from custom and practice was also rejected.

Legal Issues Presented

1. Whether the enhanced redundancy payment provision in the Staff Handbook was incorporated as an express term of the Appellant’s contract of employment.
2. Whether, alternatively, an entitlement to the enhanced redundancy payment could be implied from custom and practice.
3. Whether the enhanced redundancy payment provision was too uncertain to have contractual effect.
4. Whether extraneous evidence was admissible to determine if the provision formed part of the contract.

Arguments of the Parties

Appellant's Arguments

• The enhanced redundancy payment provision was clearly apt for incorporation as a contractual term because it was part of the remuneration package, used clear language of entitlement, and was located in the "Employee benefits and rights" part of the Staff Handbook.
• The absence of an express formula for calculation did not prevent the provision from having contractual effect, given the parties’ clear understanding of the minimum applicable formula and the Appellee’s admission of that formula in its defence.
• Even if the calculation method was not expressly defined, the provision could require the Appellee to exercise a discretion in determining the payment, consistent with legal principles established in Horkulak v Cantor Fitzgerald.
• Extraneous evidence relied upon by the Judge to construe the express term was inadmissible.

Appellee's Arguments

• The Judge was entitled to consider extraneous evidence to determine whether the provision formed part of the contract at all, arguing that the issue was one of fact, not contract construction.
• The enhanced redundancy payment provision was not apt to form part of the individual contract due to its context and genesis as a policy document rather than a contractual term.
• The provision was too uncertain to have contractual effect because it lacked a formula for calculation, and the apparent admission of the formula was a pleader’s error.
• The Horkulak principle did not assist because the provision was not contractual in nature, unlike the case in Horkulak.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Horkulak v Cantor Fitzgerald [2005] ICR 402, CA	Employer’s obligation to exercise discretion rationally and fairly in contractual discretionary payments.	The Court noted that even if the payment was discretionary, the employer must assess and pay fairly; this principle supported the Appellant’s claim if the term was contractual.
Alexander & Ors v Standard Telephones and Cables Ltd (No 2) [1991] IRLR 286	Provisions in collective agreements must be apt to be contractual terms to be incorporated.	The Court relied on this to assess whether the redundancy provision was apt for incorporation; the Appellee argued it was not.
Carmichael v National Power Plc [1999] ICR 1226, HL	Admissibility of extraneous evidence to determine whether documents constitute the entirety of a contract.	The Court distinguished this case, holding that construction of an admitted contract’s terms does not permit such evidence.
Briscoe v Lubrizol [2002] IRLR 607	Handbooks can give rise to binding contractual obligations.	Supported the view that provisions in the Staff Handbook, including the redundancy payment, could be contractual.
Kaur v MG Rover Group Ltd [2005] IRLR 40, CA	Incorporation of collective agreements into contracts and assessment of aptness of provisions as contractual terms.	Reinforced principles on incorporation and construction of contractual terms from external documents.
Nethermere (St Neots) Ltd v Gardiner [1984] ICR 612	Definition of the irreducible minimum of mutual obligation necessary to create a contract of service.	Referenced in distinguishing the present case from those where no contract existed.

Court's Reasoning and Analysis

The Court analysed whether the enhanced redundancy payment provision formed part of the Appellant’s contract by construing the Statement of Employment Terms together with the Staff Handbook. It rejected the Appellee’s argument that the issue was one of fact (anterior fact) requiring extraneous evidence to determine whether the provision was contractual, holding instead that the issue was one of construction of an admitted contract’s terms.

The Court acknowledged that not all provisions in the Handbook were apt to be contractual terms; some were policy statements or aspirational. However, it found that many provisions in the "Employee benefits and rights" part, including those related to redundancy, were apt to be contractual as they formed part of the employee’s remuneration package.

Particularly, the provision’s use of the word "entitled" and its location within the Handbook strongly indicated contractual intent. The Court found that the Judge had given insufficient weight to the plain contractual language of the provision and its context within the Handbook.

Regarding uncertainty, the Court accepted that the phrase "enhanced redundancy payment" identified a known method of calculation, supported by the Appellee’s admission of the formula in its defence. Therefore, uncertainty did not prevent the provision from being contractual.

Even if the calculation method was discretionary, the Court noted the Horkulak principle requiring the employer to exercise discretion fairly and rationally, strengthening the Appellant’s position.

Consequently, the Court concluded that the enhanced redundancy payment provision was apt for incorporation as an express contractual term and was not void for uncertainty. It therefore did not need to consider the alternative implied term claim based on custom and practice.

Holding and Implications

The Court ALLOWED THE APPEAL, holding that the enhanced redundancy payment provision in the Staff Handbook was incorporated as an express term of the Appellant’s contract of employment and was not void for uncertainty.

The direct effect is that the Appellant is entitled to the enhanced redundancy payment as claimed. The Court did not establish any new precedent but reaffirmed established principles regarding incorporation of handbook provisions and contractual construction in employment law.