We know there are a lot of employees out there at the moment who are having their employment terms changed, usually against their wishes. We thought we’d look at this in more detail, specifically focusing on what ‘custom and practice’ means and how and when a ‘custom and practice’ might be come part (a term) of your contract of employment. For more information, see our piece on changing your contracts.
We have to start by explaining what a contract is! A contract of employment is an agreement between you and your employer. There is always a contract between you and your employer, even if you do not have anything in writing, because you have agreed to work for your employer in return for them paying you.
The terms of an employment contract set out what you and your employer have agreed and what you can expect of each other; your rights and duties. There are several different types of terms and some do not need to be written down in your employment contract (although it is always best for them to be in writing to avoid confusion).
Where do contract terms come from?
Contract terms can come from a number of different sources – for example they could be:
- Verbally agreed (these are called express terms)
- In a written statement or contract or similar document. Key terms, such as work, location, hours, pay, holiday and notice periods, legally have to be given to the employee in writing by the end of their second month of employment in the form of a written statement. This is not a contract, but good evidence of the terms of the contract (also express terms)
- In an employee handbook or on a company notice board (also express terms)
- In an offer letter from your employer, when you started work (also express terms)
- Required by law, for example, your employer must pay you at least the minimum wage, give you the right to holiday entitlement.
- In collective agreements (which are agreements between your Employer and a trade union or staff association – you should be told which agreements apply to you – whether you are a member of the trade union or not).
These are not written down anywhere, but are understood to exist because of the conduct of the parties. They are usually fairly obvious to both parties to the contract without ever being recorded in writing. If there’s nothing clearly agreed between you and your employer about a particular matter, then it may be covered by an implied term. Terms are implied into a contract :
- In order to make the contract work – the most important of these is the ‘duty of mutual trust and confidence’. This means that you and your employer rely on each other to be honest and respectful. If the employer fundamentally breaches that trust and confidence, an employee may be justified in treating his or her contract as having been unlawfully breached
- Because they are obvious or assumed – so it is not felt necessary to write them down, or because it will be assumed that such a term exists.
- By custom and practice – these are specific to an employer or type of trade/industry. They are arrangements that have never been clearly agreed but over time have become part of the contract. For example, you might get a Christmas bonus every year, or the business might close early on particular days, although this is not written down. If a company practice or management policy has become a part of your contract then your employer must stick to it, and cannot normally change it without your agreement (consultation) – see our guide to how contracts can be changed.
In a 2014 case about unused flexi-time, bought under the ‘unauthorised deduction of wages’ legislation, Vision Events (UK) Ltd v Paterson. Paterson was entitled to flexi-time where if he worked more than his contractual 45 hours per week he was entitled to take time off, at a time to suit his employer. The details of how the flexi-time scheme would work on termination of employment (for accrued but untaken flexi-hours) was not documented in his contract or handbook. Four years later he was made redundant and he asked to be paid for the flexi-time he had accrued which was in excess of 1,000 hours. His employer offered to pay part of the hours but Paterson refused and the offer was withdrawn. Paterson made a claim to Employment Tribunal for unfair dismissal and unlawful deductions from wages. The Tribunal rejected his unfair dismissal claim, but agreed there had been an unlawful deduction of wages and ordered Vision Event to pay him over £12,000.
The employer appealed and the Employment Appeal Tribunal agreed and overturned the original Tribunal decision. The EAT applied the usual tests of whether to imply a term into an employment contract – whether it was necessary to make the contract work or whether it was a term which both parties would have said was agreed between them.
The EAT concluded that it failed both tests – the Tribunal had asked if the term should be implied in order to make the contract fair, but that was not the correct question. The fact that the Employer had made a “goodwill offer’ did not alter the position, they were not legally required to pay the employee. This was not a majority decision by the EAT, the claimant was close to winning his case as a minority accepted his position that it was obvious that he did not agree to work for no pay. For more details about unauthorised deductions.
More details about custom and practice
Whether a particular practice/policy, that is not written down, has become a term (part) of your contract can be very difficult to decide. There is no fixed time limit after which something is definitely part of the contract, it will be up to an Employment Tribunal to finally decide if the time period has been sufficient to render the activity/practice a permanent one under ‘custom and practice’ (so which then becomes a term of your contract, that your Employer cannot change without consulting with your first, otherwise they would be in breach of contract).
In order for an entitlement to become established by custom and practice, it must (we’ve used the example here of someone working extra hours, for a period of time, that are not specified in their contracts):
- Usually be “established”, i.e. long-standing. You need to ask how long the practice has been in place and has it been followed without exception for a period of time?
- Be “reasonable”. It must be fair and not arbitary; it must have been continuously applied and automatically given each time to all employees. You need to ask did the Employer treat the matter the same each time or differently? Is it reasonable, for example, for an employee to expect to work the additional hours?
- Be “notorious”, i.e. well-known and expected to be received (e.g. was the policy of giving extra hours formally communicated to the employee?). Ask how the practice or policy was made known to the employees – it must be communicated to all interested parties.
- Be “certain”. It must be clear-cut and be followed without exception for a period of time (e.g. how certain is it that extra hours would be granted – have there ever been any exceptions where additional hours were not given; did the hours fluctuate?).
Sometimes custom and practice is used to interpret an express term. For example the meaning of “reasonable overtime” in a written contract may be best understood by looking at how the organisation operates its overtime policy. However, where a benefit is discretionary (which could possibly include the provision of overtime) the fact that it has been granted for a number of years will not necessarily convert it to an implied term, only a Court can decide.
Custom and practice is not applicable to duties which are properly specified as, and carried out on, a genuinely temporary basis.
If you are in the situation where your Employer has changed a term of your contract that is not expressly agreed, but you believe may have become implied over time through ‘custom and practice’, then the first thing you should do is raise a grievance with your Employer to see what their response is. If you are not satisfied with the outcome of this then your only other recourse is to take your Employer to an Employment Tribunal for a breach of an implied term of the contract.
It also has to be said that if an Employer wishes to make a change to a term of a contract (whether it is an existing term or one implied by custom or practice) and justifies the need for this change as a necessary ‘business reason’, even if they are in breach of an employees contract by making the change, a Court may decide the Employers actions are justifiable for business reasons.
If you are an Employer and need ongoing professional help with any staff/freelance issues then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.
Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.