UK: Staff Handbooks: Do They Create Contractual Rights?

The Staff Handbook is a familiar document to HR professionals, not least because it needs regular updating to reflect changes in employment law and company policy. Frequently the Handbook will be expressly incorporated into employees' contracts. However, this does not mean that all of its provisions will have contractual force - some will clearly be aspirational rather than legally binding. The difficulty, of course, is deciding on which side of the line a particular provision falls. However, as the recent case of Keeley v Fosroc International Limited shows, where the disputed provision relates in any way to remuneration, the Courts are increasingly likely to find it creates contractual rights.

In Keeley, the Staff Handbook was expressly incorporated into individual contracts and provided that in a redundancy situation ‘employees are entitled to receive an enhanced redundancy payment from the Company’. However no method of calculating the payment was given.Was this statement sufficient to create a legally binding obligation?

The Court of Appeal held that it was, despite the absence of a calculation method. Noting that the Handbook clearly referred to an ‘entitlement’, the Court distinguished ‘the quite distinct procedural, aspirational or discretionary matters [dealing with] the selection of employees for redundancy’ (which were not contractual) from aspects of the remuneration package, such as redundancy compensation or paid time off to look for work elsewhere (which were contractual).

Significantly, the remuneration provisions were apt for incorporation ‘even if couched in terms of information or explanation, or expressed in discretionary terms’. In support of this proposition the Court referred to an earlier case, Horkulak, to show ‘how far the courts will go to give practical effect to the reality of the bargain struck between employer and employee in an exchange of reward for labour’. That case concerned a provision for a discretionary loyalty bonus, whose amount had to be agreed between employer and employee. It was held this created not only a contractual right to be considered in good faith for a bonus, but also a right to an enforceable sum, determined by the courts if necessary.

In the past, vague promises in Handbooks, expressed in discretionary terms, may have appeared unenforceable. Now, they may ground a claim for breach of contract. Handbooks and company policies should therefore be checked against the much looser, employee orientated test for incorporation applied today. One possible solution may be to separate out those parts of the Handbook establishing employee rights and to consider including an express clause denying contractual effect to the rest. However, much will depend on the shape of the individual Handbook. We understand that the employer has made an application for leave to appeal to the House of Lords.

Negotiations to settle an employment dispute, whether conducted verbally or in writing, are usually conducted on a ‘without prejudice’ basis. This means that if a deal cannot be reached, details of the discussions will not normally be admissible in any subsequent litigation.

The policy behind the rule is to encourage settlement of disputes - parties are more likely to speak candidly if they know their discussions are completely confidential. However two recent cases suggest that the protection given by the without prejudice rule is being eroded, particularly in discrimination cases.

In the first case, BNP Paribas v Mezzotero (decided in 2004) the EAT held that the without prejudice rule could not be used to keep evidence of ‘unambiguous impropriety’ such as discrimination from a tribunal. As a result evidence that, during negotiations, the employer had victimised the employee for complaining of sex discrimination was admissible.

In the second case (just reported), the EAT in University of Brunel v Vaseghi had to consider a victimisation complaint under the Race Relations Act. The Court confirmed that in discrimination cases ‘the necessity of getting to the truth and eradicating the evil of discrimination may tip the scales against the without prejudice [rule]’. Having considered all the facts, the Court allowed the claimant's solicitor to give evidence of the settlement negotiations which preceded the case.

The protection given by the without prejudice rule can no longer be guaranteed. Employers may therefore have to take a more cautious approach, particularly when settling discrimination claims. Unguarded comments could lead to further claims.