UK: Long-term sickness: PHI benefits
Mr Langton was employed by Cramer Systems from 2003. In addition to an employment contract, he received an offer letter and summary of benefits which set out the terms of a long-term sickness absence scheme and the level of income protection payments (IPP) payable under it, which included an “escalator” of 5% per year to account for inflation. After Amdocs acquired Cramer in 2006, it changed insurance provider and bought in a policy which had no escalator. The employees were not told about this change and Amdocs did not issue any contractual documentation to reflect this. From 2009, Mr Langton began a period of long-term sickness and, after discovering that the escalator had not been applied to his payments under the IPP, he brought a claim for unlawful deduction of wages.
Both the tribunal and EAT held that Mr Langton was contractually entitled to have the escalator applied in the calculation of the IPP. The Court of Appeal agreed, finding that the offer letter and summary of benefits sent to Mr Langton with his employment contract when he commenced employment had contractual effect and entitled him to a 5% escalator on payments made under an IPP.
Key Action Points for Human Resources and In-house Counsel
This case is a reminder for employers to ensure that contractual documents, including offer letters and employment contracts, do not inadvertently give employees a greater contractual entitlement to PHI payments (or indeed any other insurance related benefits) than would be covered by the underlying insurance policy. In order to limit employees’ benefits to the amounts covered by insurance, the limitation should be stated explicitly, and the terms of the policy should be made known to employees.
