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It is common practice for an employer to set out what they intend to be contractual terms in the contract of employment and the non-contractual policies and procedures in the staff handbook. The underlying reason for this is to minimise the risk of an employee claiming breach of contract where a policy or procedure has not been strictly adhered to. It also gives employers more freedom to change their policies and procedures.

A recent case in the Court of Appeal confirmed that, regardless of what 'label' an employer may apply to it, the courts will look at what the provision is really about when deciding whether it is contractual or not.

The case concerned an enhanced redundancy payment set out in the staff handbook in a section dealing with 'Employee Benefits and Rights' that was headed 'non-contractual'. The provision said:

"Those employees with 2 or more years continuous service are entitled to receive an enhanced redundancy payment from the Company, which is paid tax free to a limit of :%$pound;30,000. Details will be discussed during both collective and individual consultation."

The Court of Appeal found that although the wording did not specify how the payment was to be calculated, it did refer to an 'entitlement' and, as such was capable of being a contractual provision. The Court distinguished between those provisions that, read in their context, may be declarations of "an aspiration or policy which falls short of a contractual undertaking" and those provisions that are "clearly of a contractual nature and which are not contradicted by anything else in the documentation." In this case, the above clause was found to be contractual and the employee was entitled to an enhanced redundancy payment following his redundancy.

Whilst this case clearly depended on the particular wording of the enhanced redundancy provision, the Court of Appeal held that enhanced redundancy packages are a feature of an employee's remuneration package and, as such, are 'apt' for incorporation into contracts of employment.

What lessons can we learn$%:

First and most importantly, review your handbook and decide which sections you intend to be contractual (if any) and which parts you intend to be non-contractual. Next, add a sentence to each policy confirming whether you intend it to be contractual or non-contractual. It is a good idea to keep contractual and non-contractual policies in separate sections of the handbook. This will not be the end of the matter but it does indicate your intention.

The next stage is to review the wording used in the policies. If you intend a policy to be non-contractual, avoid words such as 'entitled' and 'entitlement.'