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EVERYDAY LAW: More on company manuals


Cecil McCarthy

EVERYDAY LAW: More on company manuals

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Some of the responses to last week’s article on the company manual and the contract of employment suggest that care has not always been taken to have the manual incorporated into the contract of employment.
Similarly, it is very often assumed that changes in the policy manual automatically are contractually binding on employees.
A further complication is that the manual often contains clauses that are intended to be mere statements of policy and not provisions carrying contractual force. In this regard care must also be taken to ensure that if this is so, it is apparent from the wording in the manual.
The English case of Keeley vs Fosroc International Ltd (2006) emphasizes the latter point. In that case, Mr Keeley’s contract of employment incorporated the contents of an employee handbook.
The first part of the handbook was headed Employee Benefits and Rights and contained a section under the heading Redundancy. Under this section there was a provision which stated that employees with two or more years’ continuous service were entitled to receive an enhanced redundancy payment from the company, although no method of calculating the payment was given in the handbook.
The company made Keeley redundant, but he was given an enhanced redundancy payment. As a result, he brought a claim against the company for breach of contract.
The Court of Appeal held that where a staff handbook forms part of a contract of employment, it is a matter of construction whether the particular terms were contractual or mere declarations of policy and aspiration.
The court further revealed that in interpreting a provision incorporated into an employment contract it is necessary to consider its importance in the context of the overall bargain struck. Therefore, a provision that is couched in informational or explanatory or discretionary terms may still have contractual effect.
In arriving at the conclusion that the particular provision was contractual, the court was persuaded by the following: the provision used the word “entitled”; it was included in the Employee Benefits And Rights section; and there were other terms in the Redundancy section, such as paid time off to seek alternative work, which were clearly intended to have contractual force.
The fact that the staff handbook did not have an explanation as to how the enhanced payment should be calculated was not significant since the company had a formula for this.
The court also took into account that provisions for enhanced redundancy benefits over and above the statutory entitlement were now a widely accepted part of employment remuneration packages and would therefore be aptly suited for incorporation in an employee’s contract.
The following extract from Justice Auld, who delivered the Court of Appeal judgment, captures the reasoning of the court:
33.    “. . . 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.
34. Highly relevant, in any consideration, contextual or otherwise, of an “incorporated” provision in an employment contract, is the importance of the provision to the overall 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 apt for construction as a term of his contract (providing it is not in conflict with other contractual provisions); . . . 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 . . .  .
35. Equally, if not more important, is the wording of 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 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.”
Next week I shall consider the different issue of changes to the policy manual and to what extent they can have contractual force.

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