The relationship between an employer and their employees should be set out in the employment contract. However, while a vital component of the employment relationship, the employment contract is not the only source of the parties’ rights and duties. Implied terms, including those arising as a result of custom and practice, can form part of the employment contract and it is imperative that employers are aware of the implications of this on employment rights and responsibilities, and the potential legal risks that may result.
What is an employment contract?
An employment contract is made up of express and implied terms. Express terms are those terms of the employment relationship which are specifically agreed and/or written down between an employer and employee. There is a legal requirement that certain terms, such as pay, hours of work and so on, are given in writing to the employee. In addition, there are terms set out in legislation, for example, the requirement to pay a minimum wage, and there may also be terms set out in a staff handbook, policy documents or collective agreement.
Implied terms are those terms of employment which are not written down, but which are implied or accepted into the contract. This may be because the term is so obvious that it does not need to be in writing, such as the duty of trust and confidence between an employer and employee, or it could be because the term has become accepted as a result of custom and practice.
What is custom and practice in employment law?
An event or benefit may be deemed to be an implied term of the employment contract as a result of custom and practice, even if this was not the employer’s original intention. Although not specifically agreed between the employer and employee, if the custom and practice is well-established, consistently applied and is known to the entire workforce, it could potentially become part of the employees’ employment contracts. The custom or practice in question may apply to the particular employer or possibly, a specific industry.
There are no set rules as to when a custom will turn into an implied term and only an employment tribunal can definitively decide this point. It will consider the facts of each case and how the custom or practice has operated over time. In doing so however, there are a few factors which an employment tribunal will take into account in making its decision. The custom must be:
- well-established and have been carried out over a period of time;
- consistently applied to all employees, that is, with no variation since its inception; and
- be known to, and expected by, all employees rather than just a select group of them.
There is no prescribed list of customs and practices which could become implied terms of the employment contract. Any custom which satisfies the above criteria could be considered as term of the employment contract, whether this be Christmas closing, overtime, enhanced redundancy payments or bonus payments and the list could go on.
Essentially, the employment tribunal needs to be happy that the employer intended the custom to become a term of the employment contract. Providing that a practice is discretionary, or a temporary measure, may go some way to persuading an employment tribunal that such practice is not an implied term of the employment contract, although if the temporary measure then becomes a long-standing practice, this may have the opposite effect.
By way of example:
A family firm closes for the weekend at 4pm every Friday and has done so for several years, notwithstanding that the employees’ employment contracts specify that their hours of work are 9am to 5.30pm Monday to Friday. The firm decides that this early closing is no longer viable and tells the employees that from now on it will stay open until 5.30pm on a Friday and they cannot leave until then. This could be a breach of an implied term of their contract, that is, that they can all leave at 4pm on a Friday.
Impact of TUPE on custom and practice
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (or TUPE) protect the rights of employees if their employer sells the business. TUPE ensures that the new employer cannot change the employees’ employment rights as a result of the transfer. Case law has provided that a custom or practice carried on by the selling employer, for example, enhanced redundancy payments, could transfer across to the new employer, with the result that the new employer will be obliged to continue with the custom or practice even though it is not set down in writing.
Risks for employers
Where customs and practices have become well-established in the workplace, there is a risk for employers that such customs and practices may be deemed implied terms and so form part of the employment contract between the employer and their employees. This may be the case even if the custom appears to be an informal ‘perk’ allowed by the employer.
Any amendments to an employment contract must be agreed between the parties to the contract and failure to obtain that agreement could result in a breach of the contract. Additionally, an employer has a duty to act reasonably in relation to its employees. So, if an employer chooses to change or end a long-standing custom or practice, they might be in breach of the employment contract between them and their employees. This could, at the very least, lead to misunderstandings and disgruntled employees but could also result in the employees resigning and then claiming constructive dismissal against the employer as a result of the breach.
That said, employers are able to unilaterally change employment terms if the change can be justified as a necessary ‘business reason’. Although a breach will still have occurred, an employment tribunal may determine that the employer acted in a justifiable manner. Employers should, however, be wary about relying on this and are advised to seek legal advice before making any unilateral changes.
Employers who have acquired employees under TUPE following the purchase of a business, risk ‘acquiring’ the customs and practices from the selling employer and having to continue with these even if they are against their business interests. Transferred employees are well-protected and employers should be particularly careful about acting in contravention of TUPE.
How can employers protect themselves?
There are various ways in which employers can reduce the risk of a custom or practice being deemed an implied term of their employees’ employment contracts.
- Do not include informal benefits in the employment contracts, policies or staff handbook. For example, if you usually provide a Christmas present to each employee, do not set this out in writing anywhere.
- If you need to detail discretionary benefits, such as bonus payments or enhanced redundancy payments, in any paperwork, for example, the staff handbook, ensure that they are clearly labelled as ‘discretionary’ or ‘ex gratia’ and specify that they are not contractual rights. Do not use phrases such as ‘entitled’.
- Keep track of communications which are distributed around the organisation. Ensure that any written or verbal communications maintain the ‘discretionary’ element and that any information be distributed only to those required to know.
- Ensure that any enhanced or discretionary elements of a redundancy package are explained as such.
- It may be worthwhile including specific exclusion language as a matter of course in employment contracts. It is important that if you wish to consider this as an option, that you obtain appropriate legal advice.
- If there are any customs or practices which should form part of the employment contract, ensure that they are specified in writing in the employment contract itself, a policy or the staff handbook. A custom or practice can only become an implied term of the employment contract if it is not already expressly agreed.
- Ensure that any temporary practices really are temporary and are reviewed periodically. For example, if an employee asks to work from home temporarily, do not let this become the standard and put in place definite dates.
- Provide a grievance procedure policy for employees. If any employees disagree with a change to any custom or practice, they will need to initially raise a grievance in line with the policy. This may enable the employer and employee to come to an understanding but if not, it will at least notify the employer that there may be an employment claim in the pipeline.
- As a potential buyer of a business with employees who will transfer across under TUPE, carry out a detailed due diligence process prior to completion of the transaction, preferably with the assistance of employment lawyers, so that any customs and practices which might also transfer over are discovered.
- Finally, although a potential issue and one which employers should be aware of, it is actually more difficult than it appears to show that a custom or practice has become an implied term of an employment contract and should not deter employers from awarding discretionary or ‘one-off’ benefits to their employees to help maintain a happy and productive workforce.
DavidsonMorris’ employment lawyers can help with all aspects of employment contracts, terms and conditions. We have particular knowledge of complex issues relating to contracts, such as custom and practice. Whether you are drafting new documentation or dealing with an employment dispute, we can advise by reviewing existing agreements and providing guidance on your current position and steps to take to safeguard your interests. For help and advice, speak to our experts.
Custom and practices FAQs
What does custom and practice mean?
Custom and practice refers to an unwritten and implied contract term that relates to an unofficial practice within an industry or organisation that has become accepted as the norm.
Is custom and practice legally binding?
To be legally binding, the term being implied must be fair and not capricious, well established over a period of time, known to employees, and clear and unambiguous.
What is an implied term?
Implied terms are not expressly included within a contract. They refer to provisions that a court assumes were intended to be included in a contract.
Last updated: 9 December 2022