Staff Handbooks and Contractual Rights

It is not uncommon for employees’ contracts of employment to expressly incorporate the staff handbook, although much of its contents will refer to policy matters rather than having contractual status. The decision of the Court of Appeal in Keeley v Fosroc International Ltd. illustrates the importance of making sure that the provisions contained in the handbook do not create a legally binding contractual obligation where this is not intended.

Mr Keeley’s employment contract with Fosroc International consisted of a written statement of employment terms incorporating by reference a staff handbook. The first part of the handbook was entitled ‘Employee Benefits and Rights’ and contained a section headed ‘Redundancy’. This section had a provision stating 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.

Mr Keeley was made redundant but did not receive an enhanced redundancy payment. He therefore brought a claim for breach of contract.

The case went to the Court of Appeal, which found that the terms included in the handbook could not be ruled out as having contractual effect solely because this was presented as a collection of policies. It was necessary to consider the nature and language of its terms.

When interpreting a provision incorporated into an employment contract it is necessary to consider its importance in the overall bargain struck between the employer and employee. A provision couched in discretionary or explanatory terms could still be construed as contractual.

Many terms in the handbook were apt to have contractual effect. The following facts indicated that the redundancy provision was intended to have contractual effect:

• it contained the word ‘entitled’;
• it was included in the ‘Employee Benefits and Rights’ section; and
• other terms in the ‘Redundancy’ section, such as paid time off to seek alternative work, were clearly intended to have contractual effect.

It did not matter that the handbook did not contain an explanation as to how the enhanced redundancy payment should be calculated as the company had a formula for this.

The provision was therefore intended to have contractual effect and Mr Keeley was entitled to the enhanced redundancy payment.

The Court of Appeal went on to state that provisions for redundancy, notwithstanding statutory entitlement, are now a widely accepted feature of an employee's remuneration package and are therefore particularly apt for incorporation in an employee’s contract.

In an important decision for public sector workers on this topic (Department for Transport v Sparks and Others), the Court of Appeal ruled that a clause in a staff handbook, relating to the Department for Transport's policy in respect of absences on sick leave, formed part of its employees' contracts.

The handbook, which was given to all new staff, stated that those employees who had more than 21 days off sick in any 12-month period would first be spoken to informally by management. However, if such absences persisted, disciplinary proceedings could result. The Department subsequently sought to unilaterally change that position by reducing the trigger point from more than 21 days' sickness absence to just five days.

The Department argued that the clause was merely a note for guidance or an indication of good practice. However, after an employee complained, a judge ruled that it constituted a legally enforceable contractual term which could not be changed without the consent of employees.

In dismissing the Department's challenge to that decision, the Court found that the clause was a specific expression of its policy in respect of sickness management procedures. It was properly regarded as conferring a right on employees not to have the absence procedures invoked unless the 21-day triggering event had occurred.