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Contractual Terms Implied by Reason of Custom and Practice

Parties will not necessarily find all of the terms governing the employment relationship in a contract of employment or staff handbook.

In some cases, terms may be implied into a contract of employment by custom and practice. For example, terms may become implied if they are customary in a particular trade, locality or a particular workplace.

The Courts have generally considered the following criteria to determine whether a benefit has been elevated to contractual status by reason of custom and practice.

  1. On how many occasions, and over how long a period has the benefit in question been paid?
    The longer the period and the higher the frequency, the more likely it is that employees will reasonably understand that there is a right to the benefit in question.

  2. Whether the benefits were always the same?
    If the benefit is an enhanced redundancy payment for example, a variation to the amounts or terms of the enhanced redundancy payment would be inconsistent with an acknowledgement by the employer of a legal obligation. If the benefits paid are always the same, it will be indicative of a contractual obligation.

  3. The extent to which the enhanced benefits are published generally
    While much will depend on the circumstances, if the existent of a benefit is published to the workforce generally, this will be indicative that the benefit is paid as a matter of obligation.

  4. How the terms are described
    If the benefit is explicitly and consistently described as “discretionary”, employees will find it more difficult to sustain an argument that they understood it to be a contractual benefit, no matter how often it is paid.

    In addition to describing a benefit as discretionary, employer should engage in a decision making process before conferring the benefit so that it can clearly demonstrate that the benefit is not paid automatically and as a matter of course.

  5. What is said in the express contract
    As a matter of contract, no term should be implied, whether by custom and practice or otherwise, which is inconsistent with the express terms of the contract, unless there is a clear intention to vary the terms.

The burden of establishing that a practice has become contractual is on the employee.

Take sick pay as an example. The employee’s contract of employment contains a provision that sick pay is at the discretion of the employer. However, that employer has consistently paid full time employees two weeks’ sick pay. All employees are aware of this practice as it has been followed for a number of years. However, no employee has ever been on sick leave for longer than the two week period.

In such a circumstance, an employee would be in a strong position to argue that he or she is contractually entitled to sick pay for the two week period. However, if that employee’s illness extends for longer than two weeks, the employee may seek to argue that the sick pay scheme is to pay employees for the full duration of their illness, regardless of the length of that illness. While such a claim would be more difficult for an employee to establish, there is a risk that they may do so.

Employers need to look beyond the documents governing the employment relationship and consider if an implied term may exist.

For further information on this topic, please contact Laura Graham at lgraham@reddycharlton.ie


Keywords: Publication, Laura Graham, Employment Law

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