Employment & HR - colourful people chain image

The real cost of employee salary increases

It is a common misconception that only a written agreement is enforceable as a contract between employer and employee. You should ensure that your business understands the scope of employment terms to avoid being bound by obligations which your business cannot afford to uphold.

There are a number of ways that terms can be implied into a contract of employment one of which is ‘custom and practice’.

In the case of CSC Computer Science Ltd v McAlinden 2012, McAlinden was one of a group of 23 employees who for a number of years received an annual salary increase to reflect the Retail Index Price (RPI). This was not guaranteed in the employee’s contract however the Tribunal still held that the employees had a right to receive the annual increase as it had become a part of their contract through custom and practice (i.e. continual and consistent payment). Therefore the company had to honour this payment.

Giving guarantees and providing any regular benefits whether confirmed in writing or not could be implied into an employee’s contract through custom and practice, particularly where the policy is consistently applied over a long period. This could be more costly to the business than first anticipated.

When reviewing the practices of your businesses ask yourself the following:

  • Does your business provide benefits to employees outside of the strict “written” contract terms?
  • Does the contract seek to expressly identify these benefits as discretionary?
  • Does your contract express that any salary increase does not convey any entitlement to increases in future years?
  • For what period has the Company been providing enhanced benefits/terms the employee could argue has become a term of custom and practice?