The recent Tribunal decision of Witham v Capita Insurance Services Limited demonstrates the difficulties employers face with insured benefits linked to age. In this case an Employment Tribunal found that a PHI scheme provided by the employer but underwritten by an insurer where benefit ceased at age 55 directly discriminated against an employee on the grounds of age and that such discrimination was not justified. It further held that the employee had been indirectly discriminated against by the failure to move him to a new PHI policy that paid benefit until age 65.

What happened in this case?

The employee had been in receipt of PHI benefits for a period until reaching age 55 at which point he ceased to be eligible under the terms of the existing PHI policy. Discussions had previously taken place between the employer and the employee with a view to his moving onto a new PHI policy which paid benefit to age 65 but this did not prove possible under the new PHI policy terms because to qualify the employee had to be in “active service” which he could not be because of his absence through illness.

Direct discrimination

The first issue grappled with by the Tribunal was whether there had been direct discrimination and, if so, whether such treatment was justified. The employer’s case was that a younger comparator employee would have been treated in the same way, namely that their PHI benefit would also have stopped when they too reached age 55. This was rejected by the Tribunal which noted that it was a straightforward question of a comparison between the younger employee who continued to receive benefits and the older employee whose benefit ceased. It was no answer to say that the younger employee would be treated in the same way when he reached age 55 as the focus must be on the difference in treatment between the two ages. The Tribunal decided that the employer’s failure to continue to pay the employee was because the insurer had ceased to provide the indemnity at age 55 which was intrinsically linked to age; this was therefore direct discrimination because of the employee’s age.

The employer also ran the argument that any less favourable treatment was nevertheless justified as being a proportionate means of achieving a legitimate aim, in this case, the legitimate aim being the widespread availability of PHI as a benefit to the workforce as a whole, within the constraints of the PHI policy age limits. The Tribunal accepted that this, in principle, could amount to a legitimate aim but the employer’s justification defence failed on the facts as only part of the workforce was provided with PHI policy coverage. The Tribunal also noted that cost was the real reason that payments stopped once the indemnity from the insurer ceased and in those circumstances the increased cost to the employer could not alone justify the unlawful treatment. I

Indirect discrimination

The indirect discrimination case was based on the employer’s practice (albeit constrained by the PHI policy terms) of requiring “active service” at the point of being moved to the new age 65 PHI policy. The employee argued that this practice placed him at a particular disadvantage compared with the employee’s chosen comparator group of employees age under 45. The statistics relied upon by the employee showed that 92% of those disadvantaged by the “active service” requirement were in the over age 45 category. The Tribunal also held that, statistics aside, it was obvious that individuals become more prone to debilitating illness with increased age. The employer advanced the same argument on justification but that too failed as being based on cost alone.

What this decision means for employers?

With an ever-ageing workforce, issues such as this are only going to become more frequent and without easy answers for employers. While this is only a first instance judgment, it is nevertheless instructive as to the approach Tribunals are likely to take in cases such as this, with the focus being on what the legitimate aims were that the employer was applying in restricting benefit to a particular age. In this context, the Equality Act requires there to be a social policy objective such as employment policy or labour market factors. Neither of these have a ready application to age limited PHI policies and the Tribunal judgment in this case made findings that the true reason was on the basis of the cost to the employer in continuing to pay the employee when the PHI insurer’s indemnity ceased.

This leaves employers with some unpalatable choices and with potentially large damages exposure to employees where PHI ceases at a particular age. An option may be to change the PHI policy to cover for an extended period to, say age 65, but while that may reduce the number of employees affected it does not remove the problem altogether (since age related discrimination arguments will remain) and would not help avoid claims by older employees currently on long term sick where there was an “active service” requirement. It may be worth exploring changing PHI terms to a policy that pays for a specified period of, say, five years, rather than one where the cessation of benefit is based upon age. In a similar vein a further option may be to restructure the way in which long term sickness benefit is provided so an employer offers an extended but time limited period of sick pay of, say, three or five years and insures the costs of its doing so via a PHI policy. In the latter two circumstances age discrimination arguments would be much more difficult to make because the benefit is based on a length of time and not the employee’s age.

Alternatively, it may herald a change in the way in which long term sickness benefits are provided in the workplace more generally and, with it, a move to employers paying a cash sum in lieu, leaving employees to make private arrangements for disability/long term sickness cover.