The Employment Appeal Tribunal (EAT) has held an employer liable to pay income protection payments to an employee, despite the payment not being covered by the employer’s insurance.


An employee began working for a company in 2003. He received an offer letter and a summary of benefits which set out the terms of the employer’s long-term sickness absence scheme and the level of income protection payments (IPP) payable under that scheme. These documents said that employees would receive an additional 5% “escalator” payment each year after the first 52 weeks. His employer had insurance cover in respect of its obligation to pay IPP, including the escalator payment. The summary of benefits noted that the benefit schemes were governed by the terms of the group policies.

In 2006, the employee transferred under TUPE to a new employer and, in 2009, began a period of long-term sickness. In 2016, whilst still on sick leave, the employee realised that his new employer had not been including the 5% escalator payment in his IPP. Upon bringing this to his new employer’s attention, he was informed that the escalator payment had ceased to be covered by their insurance in 2008 and so was no longer payable.

The ET decision

The employee brought a claim for the escalator payment in the Employment Tribunal (ET), which held that he was contractually entitled to receive the payment. As the new employer’s insurance did not cover the escalator payment, the ET’s decision meant that the new employer was required to pay the difference between the amount the insurance policy paid out and the amount to which the employee was entitled under his contract of employment.

The EAT decision

The new employer appealed, unsuccessfully. The EAT held that the offer letter and summary of benefits received by the claimant in 2003 were contractually binding as they were incorporated into his contract of employment. The summary of benefits noted that the operation of the IPP was governed by the terms of the insurance policy but no specific policy was referred to. Also, the claimant was never provided with a copy of the insurance policy so never saw the limits on the cover. This, the EAT said, would have been required in order for the terms of the insurance policy to restrict the extent of any entitlement.

Even if a copy of the original insurance policy had been provided to the claimant in 2003, this would not mean any subsequent change to the policy would be automatically incorporated into the terms of the entitlement. The new employer had replaced the original insurance policy with one that provided less favourable terms as it did not include the 5% escalator the claimant sought. The EAT applied an established principle that, if a restriction is introduced which limits or destroys another person’s rights, a court or tribunal cannot hold the person to be bound by it unless it was explicitly drawn to their attention. There was no evidence that the employer, in this case, had explicitly brought the change of the insurance policy terms or their obligations in relation to IPP to the claimant’s attention.

The EAT held that, as the new employer was contractually bound to provide the IPP, which included the 5% escalator, they were required to honour the full payment regardless of the terms and cover of its insurance policy.

What does this mean for employers?

This decision serves as a warning to transferee employers during a TUPE transfer to carry out thorough due diligence in relation to levels of permanent health insurance benefits which have been promised to transferring employees.

In addition, when describing any insurance-backed benefits, employers should ensure that contracts of employment are clear and do not provide any benefits that are not fully covered by an underlying insurance policy. Any ambiguity in relation to whether an employer has an obligation to provide a benefit that is not covered by an insurance policy will be decided in favour of the employee. Specific policies and the terms of those policies should be referred to and shared with the employee.

Employers should also explicitly communicate any changes or qualifications to the terms of benefit schemes to their employees in order for these to be incorporated into the terms of any relevant benefit schemes.