Permanent Health Insurance Benefits – Why the Employment Contract is key!
A recent employment appeal tribunal case has highlighted what can go wrong when an employer’s insurance policy for healthcare differs in what it provides financially, from what the employee is contractually entitled to.
In the case of Amdocs Systems Group Ltd v Langton, the employee was provided with a summary of benefits document at the beginning of his employment which set out what he was entitled to under a permanent health insurance scheme (PHI scheme). PHI schemes typically provide that when an employee is unable to work due to sickness, a percentage of their salary will be paid by the insurer after a certain period of absence.
In this case, part of the documentation provided to the employee at the start of his employment said that the annual sum paid out under the insurance, where payments went on for years, would increase by a 5% “escalator” sum each year. At the time, the employer had an insurance policy in place which covered this. However, the employee was not provided with a copy of the terms of the policy. Subsequently, and before the employee went off on long term sick leave, the employer changed its PHI policy and the new policy did not include the aforementioned “escalator”. Neither was the employee notified of this change. When the employee was off sick, he was paid the same amount year after year, with no escalator. The employee’s case was that he should have been paid what he was originally promised, in documentation, when he started employment i.e. including the escalator. The employer’s argument was that the employee should only be paid the amount currently insured. Both the employment tribunal and on appeal, the employment appeal tribunal, agreed with the employee.
In this case, the Judge said that the documentation given as a summary of benefits at the beginning of employment had contractual effect. The summary provided set out the terms of the escalator and how long it would apply for. Had the employer wished to rely on a term in the policy to limit or restrict this particular entitlement in any way, then they should have set this out, in full, to the employee. The employee had not been given the PHI policy document or anything else setting out specific terms and if the employer wanted to amend or replace the policy, then this should have been set out, in clear language.
As an employer, if you provide any such benefits under an insurance policy, you should review your contracts of employment to make sure that they are clear and unambiguous, to limit any potential exposure about the obligation to provide benefits. Please get in touch with the employment team if you would like us to assist with any reviews.