Employer liable to pay income protection payments not covered by insurance policy

Long term sickness benefits and insurance

The Court of Appeal has ruled that an employer was liable to top up an employee’s income protection payments, even though the top up payments were not covered by the terms of its insurance policy.     

Contractual documentation

Mr Langton began employment with Cramer Systems in 2003. He received an offer letter with an attached summary of benefits and an employment contract. The offer letter and summary of benefits set out the terms of the income protection scheme and the level of benefits payable. These included a reference to an “escalator” (or annual increase) of 5% per annum. The employment contract said that he was entitled to income protection benefit as outlined in the offer letter. The summary of benefits stated that the operation of the income protection scheme was governed by the terms of the group policy and nothing in the summary overrode those terms.

When Amdocs acquired Cramer in 2006, staff were told that this would not affect income protection benefits. 

Income protection payments

Mr Langon went on sick leave in 2009 and later that year began receiving income protection payments. In 2016, he discovered that the escalator had not been applied to the payments. When he queried this, Amdocs told him the escalator had been removed from the policy in 2008.

Unlawful deductions claim

Mr Langton brought an employment tribunal claim for unlawful deduction from wages. The employment tribunal ruled that he was contractually entitled to the escalator and upheld his claim. The Employment Appeal Tribunal dismissed Amdocs’ appeal

Amdocs appealed to the Court of Appeal, arguing that the employment tribunal had been wrong to find that the summary of benefits had contractual effect.

The Court of Appeal disagreed. It considered that it was clear that the contractual terms were contained in the employment contract, offer letter and the summary of benefits which was plainly incorporated in the offer letter. The offer letter promised income protection payments of 75% of salary but referred to the summary of benefits for further information. The summary of benefits, which included the escalator, was entirely clear and so was “apt for incorporation” into the contract. 

The Court of Appeal did not consider that the paragraph in the summary of benefits stating that the operation of the income protection scheme was governed by the terms of the group policy, "and nothing in this summary will override the terms of that document" made any difference. If there was something in the insurance documents as they stood in July 2003 (when Mr Langton began employment) which contradicted the express promise in the contractual documents, this should have been brought expressly and unambiguously to his attention. 

What does this mean for employers?

Employers need to be careful that contractual documents do not give employees a greater entitlement to benefits than is covered by the underlying insurance policy. This includes entitlements contained not just in the employment contract itself, but also in any other documents that may be apt for incorporation into the employment contract, such as a staff handbooks.  In addition, it is always best to include an express provision in the employment contract clearly stating that entitlement to any benefit is subject to the rules and limits of the insurance policy as amended from time to time, and employers should make sure they bring those rules and limits to the employees' attention. Merely mentioning the insurance policy is unlikely to be enough.

Amdocs Systems Group Ltd v Langton