The EAT has upheld a tribunal decision requiring an employer to make payments directly to an employee in respect of annual increases to his long-term sickness income protection, despite the fact the insurer had ceased to cover such increases years earlier.
Mr Langton’s employment began in 2003. He was given an offer letter, a summary of benefits and a contract. These documents set out the terms of a long-term sickness scheme, and the level of income protection payments (IPP) payable under it. This included reference to an “escalator” to the income protection payments of 5% every year after the first 52 weeks of sickness absence. At the time, his employer had insurance cover for IPP, including the escalator. The summary of benefits mentioned group insurance and the name of the insurer.
Mr Langton was diagnosed with a long-term sickness and started receiving IPP in 2009. After several years, he realised that his payments had not been escalated by 5%. When he questioned this, he was told that the escalator had ceased in 2008, when it was removed from his employer’s insurance cover.
Mr Langton brought a claim in the employment tribunal for unauthorised deductions from wages. The tribunal held that he was contractually entitled to the escalator and upheld his claim. His employer appealed to the EAT, arguing that the correct construction of the documentation was that the employer’s obligation was limited to the amount covered by insurance.
The employer’s appeal was unsuccessful, and Mr Langton was therefore entitled to the annual escalation in payments.
In reaching their decisions, the tribunal and the EAT reviewed the wording of the offer letter, benefits summary and contract in the context of existing case law. Important factors in their decisions were:
- The three documents conferred a contractual entitlement to the escalator.
- There was an express reference to the insurer, but this fell far short of showing that Mr Langton’s contractual entitlement was limited to the employer obtaining cover under an insurance policy and passing him the benefits payable under it.
- If reliance was to be placed on the terms of an insurance policy as qualifying or cutting back on the entitlements set out in the contractual documents, steps should have been taken to bring the particular terms to Mr Langton’s attention.
- In the absence of contractual wording stating that the terms of a policy could be replaced by a subsequent less favourable policy, the employment contract incorporated the terms of the policy in force when the employee entered into the contract.
- The summary stated that the scheme was governed by the terms of the insurance policy, but Mr Langton was never provided with the policy.
- Existing case law shows that any ambiguity or uncertainty as to whether an employer’s obligation is to provide benefits or whether it should be limited by the insurance cover will be resolved in favour of the employee.
- The limitation of an employer’s exposure must be unambiguously and expressly communicated to the employee.
WHAT DOES THIS MEAN FOR EMPLOYERS?
This is a reminder to employers of the importance of unambiguous contractual wording where insured benefits are offered to employees. In particular, the contract should stipulate (where applicable):
- If the benefit is not a contractual entitlement.
- That the benefit is subject to the terms, rules and eligibility requirements of the scheme, as amended from time to time.
- That the employer can change the level of cover, provider or benefits provided under the scheme.
- That the scheme can be withdrawn.
- That the employer is not required to make equivalent payments if the insurer does not pay out.
- That eligibility to participate in the scheme is subject to rules and a cost acceptable to the employer.
- That the employee can be dismissed, even if this would mean that they can no longer benefit under the relevant scheme.
The employee should also be provided with the terms of the relevant schemes.