HR policies: contractual or non-contractual?

The case of Department for Transport v Sparks and others is a helpful reminder of the important distinction between contractual and non-contractual policies. Just because a provision is contained in a policy, rather than the contract of employment itself, does not necessarily mean that it is non-contractual.

Contractual vs non-contractual: why does it matter?

It is important to know whether policies are contractual or non-contractual because:

• It impacts on your ability to amend them;
• There are additional risks if you depart from / breach a contractual policy (as compared to departing from / breaching a non-contractual policy); and
• There may be implications regarding how you manage an employee who has breached a contractual policy.

The facts

The Department for Transport wanted to unilaterally implement a new attendance management procedure which contained an earlier trigger point for disciplinary action than the 21 days' absence provided for in the existing procedure.

• The attendance management procedure was contained in a staff handbook.
• The part of the handbook with the provisions on ill-health stated that all of its terms which were apt for incorporation were to be incorporated into employees' contracts of employment.
• The chapter on ill-health stated that it set out "your terms and conditions of employment relating to sick leave... and the management of poor attendance".

The employees claimed that this meant the current absence management procedure was a contractual term which could not be changed without their agreement.

The decision

The Court of Appeal agreed. The absence management procedure had been incorporated into the employees' contracts and, therefore, could not be changed unilaterally.

The court found that the Department for Transport had intended the staff handbook to be contractual. Although many sections were meant for guidance only, and therefore were not apt for incorporation, the provisions in relation to absence management were sufficiently clear and precise to be incorporated. The language of the introduction to the provisions pointed towards contractual status.

Practical considerations for employers

Whether the terms of an HR policy are contractual will depend on:

• The wording of your policies and contracts;
• Whether implied contractual rights have arisen (which will depend on the circumstances, for example, the policy terms and extent to which they have been followed in the past).

It is possible for a policy or handbook to be largely a matter of guidance and good practice but with specific provisions having contractual force.

Given the risks involved in amending a contractual policy or procedure unilaterally, employees' consent will be required to make any changes. This is something employers will usually want to avoid. To reduce the likelihood of policy terms having contractual status:

• Include a clear statement at the beginning of the policy or procedure that it is non-contractual;
• If the document is drafted specifically as management guidance - say so;
• If possible, replace words like 'will' and 'must' with 'may';
• Include a statement that the policy or procedure may be adjusted depending on the circumstances; and
• Include a unilateral right to vary the policy itself.

It is important to regularly review and update HR polices to reflect current best practice, changes in the workplace and new legislation or case law. Get in touch with one of our employment lawyers for assistance with this.

Workbox by Brodies 

Template HR policies and guidance on amending policy and contractual terms can be accessed via our online HR site, Workbox by Brodies, at the pages on Policies and Employee Handbooks and Changing Terms and Conditions. To arrange a short online demo, click the button below or get in touch.