An implied right to an enhanced redundancy payment?

Opinion in the case of Grant Fisher v Applied Drilling Technology International Limited

Lord Malcolm gave his opinion in this interesting case on 22nd July. Symptomatic of the difficulties facing this industry, the case concerned redundancy terms for an off-shore worker.

Grant Fisher (“GF”) was employed by Applied Drilling Technology International Limited (“ADTI”) as a well engineer until July 2015, when his employed was terminated by reason of redundancy. Prior to working for ADTI, GF had worked for Transocean Drilling UK Limited (“TD”), a company which was part of the Transocean Group, until his employment transferred to ADTI on 1 December 2013.

GF argued that instead of the statutory redundancy payment which ADTI proposed to pay to GF, he was entitled to an enhanced redundancy payment in the sum of £11,380, calculated on the basis of three weeks’ salary per completed year of service. He argued that such a payment was implied into his contract of employment, as a result of custom and practice.

Arguments

GF argued that an enhanced redundancy package had been offered by the Transocean Group to all shore based employees since at least 1986, (with a cap of twelve months salary being introduced in 2000). It was submitted that this practice was ‘well known’ amongst employees through word of mouth and that it even featured as a topic of discussion during workforce consultations prior to the transfer of staff to ADTI in 2013.

ADTI sought dismissal of the action at debate on the basis that the pleadings were, in short, irrelevant. They argued that the enhanced payments could not be attributed to an implied contractual obligation and that if GF’s knowledge of such a practice had only come about by way of a breach of the confidentiality terms of other settlement agreements, it could not be described as a contractual right. It was also argued that there was no publication of a policy to pay such payments and that the employer, if so bound, would have had to have objectively done something to represent to the workforce that payments were being made as a result of a contractual right. ADTI also challenged GF’s reliance on payments made by other companies in the Transocean Group, on the basis that these were separate legal entities and that there was no such thing as a “group collective will”.

ADTI further argued that in order to succeed, GF would be required to show that the proposed implied term was so obvious that it “went without saying”. It was submitted that custom and practice should not obscure the essential task of determining what the parties must have understood from one another’s conduct and the words used.

GF argued that the absence of any evidence of the practice being written down is not determinative of whether there was an intention to be bound and it was instead important to consider the full circumstances of the case. It was also argued that (i) the Transocean group was run as a centralised group – which should be taken into consideration; and (ii) the fact that the payment was conditional on the signature of a settlement agreement did not render it ‘ex gratia’.

Decision

Lord Malcolm decided that because GF was not ‘bound to fail’ in his arguments, it was not appropriate to dismiss the case without hearing the evidence. ADTI’s application for dismissal was therefore refused and a hearing will be fixed to determine further procedure.

Lord Malcolm noted that the key question is whether “the employer intended to be bound as a matter of contractual interpretation.” Relevant factors were cited as being “communications from and on behalf of the employer; whether the package was offered without exception for a substantial period and the number of such occasions; and the reasonable inference which employees could draw from all of this.”

It was held that in principle and in the right circumstances, a custom or established practice can crystallise into a contractual right. Ultimately much is fact specific and dependent on the evidence led.

Comment

This case is interesting from a legal perspective as it analyses the rules around contractual interpretation in the context of employment law, however in terms of wider application, it serves as a reminder to employers that employees’ contractual rights are not simply determined by the words used in the written contract of employment. Much depends on the actings of the parties and how they understand the contract to operate.

A final decision has not yet been made in this case and it will be interesting to see whether it does proceed to a full hearing on the evidence. The possible ramifications for ADTI are significant, not least because this is a test case against a background of around 70 other actions, however other employers should take care to consider whether they have acted in a way which may lead to their employees enquiring enhanced rights.

A copy of the full judgement is available, for information, from the Scottish courts website:
http://www.scotcourts.gov.uk/search-judgments/judgment?id=88ea19a7-8980-69d2-b500-ff0000d74aa7

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