Voluntary redundancy - be careful what you promise
Lynam v Birmingham City Council
An employer who promised employees the right to apply for voluntary redundancy breached their contracts by instead making them compulsorily redundant.
While there’s no statutory obligation to ask for volunteers for redundancy, many employers do so. Employers may also have a contractual obligation to offer VR if a redundancy procedure states that the employer will always ask for volunteers before considering compulsory redundancies. This case serves as a useful reminder to be very careful about what you promise in a redundancy situation.
At the end of 2013, Birmingham City Council (BCC) posted a notice on its intranet with the heading ‘Voluntary Redundancy (VR) Information and guidance for employees’, which said that it intended to offer a generous VR package during 2014-15 to ‘affected’ employees, identified as such in the TULR(C)A 1992, s. 188 notice. The intranet notice stated that all ‘eligible’ employees would be contacted and invited to make an application for VR. In September 2014 Mrs Lynam and others were told that VR would not be available to them and they were made compulsorily redundant with effect from 30 April 2015.
They claimed damages on the basis that BCC was in breach of contract by not allowing them to apply for VR. BCC argued that the employees had no contractual right to apply for VR because:
- It had only offered the enhanced VR package in one previous year and was unlikely to do so again after 2014-15. There was therefore no ‘policy’ giving rise to a contractual right.
- It was only those employees invited to apply for VR who would be eligible and who had a contractual right to make the application.
- The contractual right was limited to a right to make an application. Even if an application was made, there was no right to receive VR.
- Employees within a pool of those whose roles were to be deleted had no right to apply for VR.
A tribunal dismissed their claims and they appealed.
Allowing their appeal, the EAT held that the VR scheme which had been put forward to the employees was contractual. Not following this contractual procedure was an unlawful breach of contract.
- The employees’ claim was that BCC had told them they could apply for VR, and then told them they could not. That was a breach of contract - whether or not there was a ‘policy’ was irrelevant. The proper focus was on what BCC had communicated to its staff.
- The tribunal had got it wrong when it interpreted the VR documents as stating only those specifically invited to apply to VR would become ‘eligible’. The documents clearly stated that all ‘affected’ employees, which included Mrs Lynam and her colleagues, would be eligible for the VR scheme. It was also of note that ‘affected’ and ‘eligible’ were used interchangeably in the documents. The fact BCC would not necessarily grant them VR if they applied did not affect BCC’s liability to invite them to do so (although it would be relevant to the issue of how much any damages for breach would be).
- BCC had not communicated there was any restriction on the right to apply for VR.
The real issue in this case said the EAT was whether BCC’s communications, viewed objectively, gave rise to a contractual right to apply for VR. The EAT didn’t hold that Mrs Lynam and her colleagues were entitled to receive the VR package – that was in BCC’s discretion – but that they were entitled to apply for VR.
Link to judgment: http://www.bailii.org/uk/cases/UKEAT/2017/0072_17_0609.html
This case takes us back to basic contractual principles and is a salutary reminder and warning, particularly to HR professionals, on how easily and unwittingly a contract can be formed. The terms of a contract do not have to be contained solely within the ‘employment contract’ and contractual obligations can arise, as in this case, where a promise is made to an employee, whether by email, intranet or otherwise, which the employee reasonably expects will be honoured. The lesson here is to be very careful of what promises/commitments are made to employees and the language used, otherwise they may amount to contractual obligations and lead to a claim for breach of contract/damages where the promise has not been kept.