Employment Law Cases
Benefits under long-term sickness scheme
Amdocs Systems Group Ltd v Langton
An employer was liable to pay the level of income protection payments set out in an offer letter and summary of benefits provided by the employee’s original employer prior to a TUPE transfer, even though those benefits were no longer covered under the employer’s insurance policy.
When Mr Langton started work for CSL in 2003, he was given an offer letter, a summary of benefits and a contract. His contract entitled him to those benefits ‘set out in the manual [staff handbook] and outlined in the employee’s letter of offer’, including an income protection plan (IPP) These documents set out the terms of a long-term sickness scheme, and the level of IPP payable under it. IPP would start after 13 weeks of sickness, would be paid at 75% of normal salary and (crucially for this case) be subject to an ‘escalator’ of 5% every year after the first 52 weeks of sickness absence. CSL stated that it had insurance cover for IPP, including the escalator. The summary of benefits mentioned group insurance and the name of the insurer. Rights could be varied via amendments in the manual, with such amendments communicated to each employee individually. Mr Langton wasn’t provided with a copy of the manual when he started work in 2003, nor a new version published in 2005 which allowed the employer from time to time to change the benefit provider of change the extent of IPP cover.
In 2006 CSL was acquired, via a TUPE transfer, by ASG. Following the transfer an HR representative from ASG gave a presentation in which it was stated that the IPP provision would not be affected by the transfer and this was confirmed in a subsequent letter. Mr Langton also signed a form confirming that he wished to participate in ASG’s income protection scheme. In 2008, ASG changed insurance provider and bought in a policy which had no escalation rate. No employees were told of the change nor did ASG issue any contractual documentation to reflect it.
In 2009 Mr Langton was diagnosed with a long-term sickness and started receiving IPP. He later discovered that his payments had not been escalated by 5%. When he questioned this with ASG, he was told that the escalator had ceased in 2008, when it was removed from his employer’s insurance cover.
Mr Langton brought a tribunal claim for unauthorised deductions from wages. The tribunal held that he was contractually entitled to the escalator and upheld his claim. ASG appealed, arguing that the correct construction of the documentation was that their obligation was limited to the amount covered by insurance.
The appeal was dismissed.
The offer letter and summary of benefits were contractually binding as they contained clear and certain terms and were intended to be incorporated into the contract of employment.
The EAT reviewed the case law governing such scenarios (including Awan v ICTS Ltd) and observed that the consistent theme emerging from them is that if there’s any ambiguity or uncertainty as to whether an employer’s obligation to provide benefits is limited by reference to specific terms of the employer’s insurance cover, any such ambiguity is to be resolved in favour of the employee. Additionally, a reference in contractual documentation that the employer has arranged insurance in respect of the benefit is not enough, on its own, to make good the contention that the employer’s commitment is limited by reference to the terms of that policy. Any such limitation of the employer’s exposure must be unambiguously and expressly communicated to the employee. Mr Langton had not been given the insurance policy terms or any other document which set out the specifics of those terms.
The EAT also held that, even if ASG’s obligation had been limited to the cover provided under the insurance policy, then the relevant terms would have been those in the 2003 policy, when the contract was entered into, and not the subsequent, less favourable, terms. ASG appealed on the ground that the tribunal was wrong to find the summary of benefits had contractual effect and that it should have found that the sole source of Mr Langton’s right to the relevant contractual benefit was to be found in the manual.
Court of Appeal decision
The appeal was dismissed, and in pretty short order.
The court noted that Mr Langton was given three documents when he started work: the offer letter, the summary of benefits, and the contract of employment. He wasn’t given the 2003 manual/staff handbook, a copy of the insurance policies or given/told about the 2005 manual (although it was placed on the company intranet).
The court noted how common it is for a contract to be found in multiple documents and that the summary of benefits was referred to in the offer letter and was perfectly clear and included reference to the escalator. Mr Langton’s contract specified his entitlement to benefits as set out in the manual and outlined in the offer letter. The manual was not produced in evidence.
Whilst the contract contained a power to vary the contents of the manual, it also stated that such amendments would be communicated to each employee individually. It was rightly not ASG’s case that unilateral variation not communicated to Mr Langton could have any effect.
Where an employer provides benefits under an insurance plan, it may be personally liable to make payments if it is not clear enough in how it expresses the benefits in any documentation supplied to employees. If employers want to limit their obligations to make such payments, this must be explicitly communicated to the employee, and any uncertainty will be construed in the employee’s favour. Employers should also make clear that the scheme rules may be amended or replaced from time to time, and that any benefits payable will be subject to the rules in force at the time they are claimed.
The decision also highlights the importance of due diligence when purchasing a business. Employers inheriting employees on a TUPE transfer should take particular steps to ascertain what their liabilities could be, as they could find themselves liable to make payments under a historic insurance policy to which they were never a party.