When Does Custom and Practice Affect Contract Terms?

Custom and practice is one of ways in which employment terms may vary an employment contract. In order for a term to become implied by custom and practice it must be “reasonable, notorious and certain”.

The term varying the contract via custom and practice must be:

fair and not capricious;
well established over a period of time;
known to employees;
clear and unambiguous.

The fact that a benefit has been granted by an employer for a number of years does not necessarily mean it has become a binding entitlement. In part, this is because the term must be known to the workforce so that employees have a reasonable expectation of receiving the benefit. For example, if details of the benefit are published in an easily accessible document such as a staff handbook this might point towards an implied term. However, if information about the benefit is set out in a restricted policy document available only to a small group of management or HR, this would indicate that the benefit is less likely to have become an implied term. Secondly, the employer must have behaved in such a way which suggests it felt a sense of legal obligation to provide the benefit.

The question a tribunal will ask is whether the circumstances demonstrate that the parties intended the term to form part of their contract? Can they be taken to have accepted that the practice has attained contractual status?

The Court of Appeal considered the matter In Park Cakes v Shumba & Ors, 2013 which concerned a disputed entitlement to an enhanced redundancy payment. The Court emphasised that the crucial task for a tribunal was to assess objectively whether the employer's conduct evidenced an intention to be bound by the term:

The Court went on to set out some useful questions to consider in such cases.

On how many occasions, and over how long a period, have the benefits in question been paid? The more often enhanced benefits have been paid, and the longer the period over which they have been paid, the more likely it is that employees will reasonably understand them to be paid as of right.
Are the benefits always the same? Any inconsistency during the period relied on as establishing the custom is likely to be fatal to establishing custom and practice.
How far are the enhanced benefits publicised? Where the availability of enhanced benefits (for example, on redundancy) is published to the workforce generally, that will tend to convey that they are paid as a matter of obligation. In some circumstances publication to a trade union, or perhaps to a significant group of employees, may be enough to constitute publication to the workforce as a whole.
How are the terms described? If an employer clearly and consistently describes benefits in language that makes clear that they are offered as a matter of discretion - for example, by describing them as ex gratia - it is hard to see how the employees or their representatives could reasonably understand them to be contractual, however regularly they may be paid.
What is said in the express contract? As a matter of ordinary contractual principles, no term should be implied, whether by custom or otherwise, which is inconsistent with the express terms of the contract, at least unless an intention to vary the relevant contractual term can be established.
Is the position ambiguous? The burden of establishing that a practice has become contractual is on the employee, and he or she will not be able to discharge it if the employer's practice is, viewed objectively, equally explicable on the basis that it is pursued as a matter of discretion rather than legal obligation.

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Although every effort has been made to ensure the accuracy of the information contained in this blog, nothing herein should be construed as giving advice and no responsibility will be taken for inaccuracies or errors.

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When Does Custom and Practice Affect Contract Terms?

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