Insurance-backed benefits: what are your obligations?

The Employment Appeal Tribunal has confirmed that employers must explicitly inform employees if any insurance-backed benefits are limited by the extent of the employer’s cover.

Otherwise, it is likely that the employer will be obliged to provide the benefit in full, even if the payment is not insured.

Facts

The employee in question, Mr Langton, originally accepted a role as a Test Engineer with Cramer Systems Limited (‘Cramer’), in 2003.

As part of Mr Langton’s original benefits package contained within his offer letter and Contract of Employment, he was offered an Income Protection Plan (‘IPP’) of 75% of salary.

The IPP included an ‘escalator’ payment which stipulated, as set out in the Claimant’s offer letter and Summary of Benefits, that after 52 weeks, Mr Langton was entitled to have the amount under the plan increased by 5% every year.

Mr Langton’s employment TUPE transferred from Cramer to Amdocs Systems Group Limited (‘Amdocs’). Following the acquisition, Mr Langton attended a presentation, in which Amdocs confirmed the IPP provision would not be affected.

Mr Langton subsequently began a period of long-term sickness, and claimed IPP payments from Amdocs; however, the ‘escalator’ payment was not applied.

When Mr Langton contacted Amdocs to query the missing payments, Amdocs stated that the policy was removed from the benefits package in October 2008 and so Mr Langton was not entitled to the escalator payment.

Amdocs argued that Mr Langton’s original offer of income protection (which referenced the employer’s insurers) was subject to and limited by the Amdocs’s level of insurance cover. Amdocs had chosen a level of cover which did not include escalator payments.

Mr Langton issued a claim for non-payment of the escalator payment.

Decision

An Employment Tribunal found that the offer letter, summary of benefits and contract of employment conferred a contractual entitlement upon Mr Langton to the escalation payments. The Tribunal held that it was the clear contractual intention of the parties to bestow the IPP benefits on Mr Langton, which included the 5% escalation rate.

The Tribunal also held that the reference to an insurer contained within the summary of benefits fell short of being sufficient to show that Mr Langton’s entitlement to the protection payments was limited to the extent of Amdocs cover.

As a result, Amdocs was found to be responsible for the payments, even though this amount was not covered by any insurance policy.

Amdocs appealed, but the Employment Appeal Tribunal upheld the original Employment Tribunal decision.

Comment

This judgment highlights that if employees are provided with clearly communicated contractual entitlements, employers are likely to be obliged to provide those benefits - regardless of whether or not the cost is covered by insurance. 

Simply referencing the existence of an insurance policy “in force from time to time” is unlikely to be sufficient to limit liability to that which is covered by the policy.

Clear and unambiguous wording must be used if an employee’s benefits are limited by an employer’s insurance cover. This is likely to include ensuring that the employee has access to the relevant terms of the policy, and ensuring that the employee’s attention is drawn to the limitations of the cover.

However, limiting benefits in this way is likely to be unattractive and may deter new recruits. Therefore, employers would be well advised to check

• what has originally been promised to employees (whether directly or prior to a TUPE transfer); and
• ensure that the level of any insurance coverage is sufficient to meet the employer’s original obligations.

Please click here to read the full judgment.

Contributors: Ciara Crosbie and Sarah Maddock