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Flexi-time: no requirement to pay for unused hours on dismissal

Where an employer operates a flexi-time scheme, what happens to unused hours on termination of employment?

Where an employer operates a flexi-time scheme, what happens to unused hours on termination of employment?

In its Judgment in the case of Vision Events (UK) Ltd v Paterson, the Employment Appeal Tribunal has provided some reassurance for employers.  It held that, where the contract of employment and staff handbook were silent on this question, the employee was not entitled to payment. It is not necessary, or correct, to read into the contract a term that the employee should be paid for the outstanding hours, where no such written term exists.

The detail

Mr Paterson participated in a flexi-hours scheme whereby, if he worked beyond his contracted 45 hours per week, he would be entitled to take time off at a time that suited his employer. He was not paid overtime.

When he was made redundant he had accrued 1043 hours (or almost 23 weeks!) of unused flexi-time. Mr Paterson demanded to be paid an hourly rate for these unused hours. His employer refused, stating that he had no contractual right to payment. However, as a ‘goodwill gesture’, it offered to pay for 50% of the hours accrued.

Mr Paterson declined this offer and brought an Employment Tribunal claim for Unlawful Deduction of Wages.

The Employment Tribunal held that it would be unfair to expect Mr Paterson to forfeit these hours without remuneration, and ‘implied’ a term into his contract that accrued hours would be paid on termination. As a result, VE Ltd was ordered to pay Mr Paterson over £12,000. However, following an appeal by VE Ltd, the Employment Appeal Tribunal reversed this decision.  It held that it had not been necessary or appropriate to imply an extra term into the contract.

They held that the company was not required to pay the employee a sum for the unused hours.  The company could also require the employee to use his hours during his notice period rather than paying him separately for them as it had reserved the right to dictate when any accrued hours should be taken.

What does this mean for me?

Whether unused flexi-time is payable on termination will largely depend on the terms of your organisation’s scheme and your own commercial practice. However, there are some practical lessons to be drawn from this case. It is rather alarming that this employee was allowed to accrue such an unmanageable (and expensive) amount of flexi-time, when it would certainly have been best practice to regularly review his accrued hours and require him to take them periodically. A provision allowing you to dictate when accrued hours are taken is essential in this respect. Ideally, a robust flexi-time policy or employment contract should include clear provisions about what happens to accrued hours on termination to avoid disputes of this kind.

Comment

This is an encouraging Judgment for employers. It serves as a reminder that an Employment Tribunal will generally be bound by what the parties have written down or agreed. Additional terms should only be ‘implied’ into a contract where this is necessary to make the contract ‘work’ in practice or where it is clear that the parties would have agreed such a term. A Tribunal should not go to such lengths just to make a contract ‘fairer’ in its own view.

The Judgment also makes clear that employers should not be penalised for making goodwill offers or payments. It was held in this case that an employer was entitled to make such a gesture without it being treated as a concession that there was a legal requirement to pay.

If you are thinking of drawing up a flexi-time policy, or have any concerns about your existing scheme, please speak to your usual Weightmans contact or get in touch with Phil Allen in our Manchester office phil.allen@weightmans.com.