Employer Not Liable for Discriminatory Term in Permanent Health Insurance Policy

A fixed term employee had not been treated less favourably by his employer on grounds of fixed term status when the insurer under a permanent health insurance policy refused to pay out because the fixed term contract expired in the 26 week waiting period. 

In Hall v Xerox Uk Ltd, Xerox provided the benefit of permanent health insurance (PHI) to both permanent and fixed term employees who had been off work for 26 weeks as a result of a qualifying injury. Employment contracts stated that the benefit was subject to acceptance by the insurer and that Xerox was only liable to make payment to the employee if it had been paid by the insurer. In addition, Xerox was not obliged to provide any replacement benefit if no payment was made by the insurer. Under the terms of the insurance policy, fixed term employees were not entitled to receive PHI benefits where their fixed term contract expired before the end of the 26 week waiting period. 

H worked under a succession of fixed term contracts. In April 2012, when working under a contract due to expire in July that year, he suffered a work-related hernia and was off work sick. The insurer refused his claim for PHI benefits because the fixed term contract expired before the end of the 26 week waiting period. This was despite the fact that the fixed term contract had been renewed by the employer for another year. 

H claimed less favourable treatment contrary to the Fixed Term Employees Regulations. 

The employment tribunal dismissed his claim. Whilst he had been treated less favourably than a permanent employee and this was because of his fixed term status, the detriment suffered was not due to any act or omission of the employer, as required by the statutory wording. It was caused by the insurer and as the insurer had not been acting as Xerox’s agent it was not liable for any discrimination by the insurer. The employment tribunal also ruled that even if there had been less favourable caused by the employer, it would have been justified as all PHI insurance policies contain a similar term.

The Employment Appeal Tribunal upheld the employment tribunal decision. 

Employers will be comforted by the EAT’s decision which indicates that employers may not be liable for discriminatory terms in the underlying insurance policy of insurance-backed benefits which result in benefits not being paid out. 

It is important to bear in mind that the result in this case may have been different had the employment contract also contained the discriminatory term. In that case, the employer may well have been found liable for discrimination on grounds of fixed term status, unless of course it was able to justify the less favourable treatment. In that regard, employers will be reassured by the employment tribunal’s view that a discriminatory term may be justified by the fact that all insurance policies contain the same discriminatory term, meaning that there was no more suitable (i.e. less discriminatory) policy available for it to purchase.