Custom and practice refers to unwritten workplace practices that, over time, become implied terms of an employee’s contract. These practices develop through consistent, long-standing actions that are known to and accepted by both employers and employees, such as regular annual bonuses or extra holiday days may become contractual if consistently provided without formal agreement.
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.
If an employer introduces a benefit or practice informally and repeats it over a significant period, employees may argue that it has become an implied contractual term. Employers could face disputes if they later attempt to alter or withdraw the benefit without proper consultation.
UK employers, therefore, need to be mindful of the risk of unintentionally creating binding obligations.
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 several steps employers can take to reduce the risk of a custom or practice being deemed an implied term of their employees’ employment contracts. Employers should avoid including informal benefits in employment contracts, policies or staff handbooks. For example, if it is customary to provide employees with a Christmas present, this should not be set out in writing anywhere.
If discretionary benefits, such as bonus payments or enhanced redundancy packages, are mentioned in documents like staff handbooks, they must be clearly labelled as discretionary or ex gratia and explicitly stated not to be contractual rights. Employers should avoid using phrases like “entitled” to describe these benefits. Any written or verbal communication about such benefits must maintain the discretionary element and be shared only with those who need to know.
Enhanced redundancy payments or discretionary elements should always be explained as such to avoid misunderstandings. Employers should consider including specific exclusion clauses in employment contracts, ensuring appropriate legal advice is obtained beforehand. Any customs or practices intended to form part of the employment contract should be clearly specified in writing, either in the contract itself, a policy document, or the staff handbook. A practice cannot become implied if it is already expressly agreed upon.
Employers must ensure temporary practices remain temporary and are reviewed regularly. For instance, if an employee requests to work from home temporarily, it is important to set clear dates and not allow it to become standard practice. Employers should also provide a grievance procedure policy for employees. If any employee disagrees with changes to a custom or practice, they must raise a grievance in line with the policy. While this may lead to a resolution, it also serves to notify the employer of a potential employment claim.
When acquiring a business where employees will transfer under TUPE, employers should conduct detailed due diligence, ideally with the assistance of employment lawyers, to identify any customs or practices that might transfer along with the workforce.
Lastly, while employers should be aware of the potential risks, it is often more difficult than it may appear for a custom or practice to become an implied term of an employment contract. Employers should not be discouraged from offering discretionary or one-off benefits, as these can help maintain a happy and productive workforce.
Need assistance?
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 practice FAQs
What is custom and practice in employment law?
Custom and practice refers to unwritten workplace practices that, over time, become implied terms of an employee’s contract due to consistent use and mutual acceptance.
How does custom and practice become legally binding?
A practice can become legally binding if it has been consistently applied over a significant period, is well-known to employees, and they reasonably expect it to continue.
Can custom and practice override a written contract?
In some cases, yes. If an unwritten practice becomes established and widely accepted, it may be treated as an implied term, even if it is not part of the written contract.
What are examples of custom and practice?
Examples include regularly providing annual bonuses, additional holiday days, or allowing flexible working hours without formal documentation.
How can employers avoid creating unintended obligations?
Employers should clearly state in contracts and policies which practices are discretionary and not contractual. Consistent communication with employees is key.
Can employers withdraw a benefit established through custom and practice?
Withdrawing such a benefit can be risky and may lead to disputes. Employers should consult with employees and provide adequate notice before making changes.
What factors do courts consider in disputes over custom and practice?
Courts consider how long the practice has existed, how consistently it has been applied, and whether employees reasonably relied on or expected the practice to continue.
Does custom and practice apply to all employees?
If a practice has been applied broadly and consistently across the workforce, it may apply to all employees within similar circumstances.
What should employers do if unsure about custom and practice?
Employers should seek legal advice to clarify whether a workplace practice could be legally binding and to manage any risks appropriately.
Can new management stop an established practice?
New management can attempt to stop an established practice, but they must assess its legal status and consult with employees before making changes.
Author
Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.
Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals
