What happens to unused flexi-hours?

Posted by Sarah Peacock on
This article first appeared in the March 2014 edition of Payroll World Magazine.
Can an Employment Tribunal imply contractual terms about the payment of untaken flexi-time at the end of employment, if the contract says nothing? 

Sarah Peacock looks at a recent case on whether the employer should have paid untaken flexi-hours when an employee was made redundant.

Implied terms

When the express terms of a contract fail to deal with an issue, it is sometimes possible for terms to be implied.  There are various categories of implied terms which include:

  • terms based on the factual scenario, implied to fill a gap in the drafting and which reflect the parties' intentions when they agreed the contract;
  • terms implied by custom and practice, if they are customary in a particular trade or industry or at a particular workplace; and
  • terms implied by law (such as the right to equal pay), which are not based on the presumed intention of the parties.

Was payment of flexi-hours implied?

Mr Paterson was employed as an event technician at Vision Events (UK) Ltd (the Company), earning a fixed salary and an hourly rate for overtime.  He was promoted in 2008 to Multimedia Producer and received a salary increase, but lost his right to overtime pay.  He participated in a flexi-hours scheme, whereby if he worked beyond his contractual 45 hours per week, he would be entitled to time off in lieu at a time which suited the employer.  The employee handbook was silent about accrued hours on termination of employment. 

Mr Paterson was made redundant in 2012 and sought payment from his employer of more than 1000 accrued flexi-hours.  The Company offered to pay 50% of the hours, which Mr Paterson refused. He won his claim in the Employment Tribunal (ET) for unlawful deduction from wages amounting to over £12,000. The ET had ruled that the absence of an express term regarding payment for accrued flexi-hours on termination of employment did not mean that they would be forfeited.  Mr Paterson submitted monthly timesheets to the Company so it was aware how many hours he was accruing. In light of other contractual provisions, the ET viewed the Company's offer to pay Mr Paterson 50% of his accrued flexi-hours as admitting it had such an obligation.  The ET concluded that there was an implied term that payment for accrued flexi-hours would be made on termination. For some reason it also ruled that Mr Paterson could not be required to use up the flexi-hours during his notice period.

No implied term

Fortunately, the Employment Appeal Tribunal (EAT) disagreed and allowed the employer's appeal, although not all the EAT members agreed. However, the decision of the other EAT members (the majority) prevailed.

The EAT held it was not necessary to imply a term that flexi-hours would be paid on leaving to fill a gap in the drafting.  Such terms are implied to make the contract workable. In its view that was not necessary here and nor was it one which both parties believed should be implied. The ET was wrong to decide it should be implied to make the contract fair: that is not the correct test.

The EAT also held it was not impossible to understand that the employer was prepared to make a goodwill offer, and making such an offer is not a concession that there is a legal requirement for it to pay.  Further, it was clear that the company was entitled under the contract, and had previously exercised the right, to direct when the time off in lieu should be taken. Mr Paterson could therefore have been required to use the flexi-hours during his notice period.

In this case the employer had a lucky escape and the EAT gave it the benefit of the doubt. However, problems arose because of unclear drafting of the flexi-hours scheme and the employer not clearly instructing Mr Paterson to take those hours during the notice period (there was some confusion as to whether he was on 'garden leave'). 

Employers should ensure that flexi-time schemes make clear what will happen to accrued hours on termination.  In particular the employer must have the contractual right (and exercise it) to decide when flexi-time should be taken. The contract should specify that it can be required to be taken during the notice period. Employers should think carefully how they intend to deal with flexi-hours if they pay in lieu of notice. The case also shows how carefully a 'goodwill gesture' should be worded to avoid conceding liability for any payment.

Key Points:

  • Contractual terms can sometimes be implied by Employment Tribunals (often in the employee's favour) if the contract is not sufficiently clear;
  • Where flexi-hours are operated, contracts should make clear what happens to accrued flexi-hours on termination of employment;
  • Employers should have the contractual right to direct when flexi-hours are taken, and monitor it to avoid a large build up of untaken hours.

About the Author

Sarah specialises in all aspects of employment law, including health and safety, offering comprehensive and pragmatic commercial advice.

Sarah Peacock
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