PHI entitlements following TUPE transfer

In this case, the Employment Appeal Tribunal was deciding whether an employer was liable to pay PHI benefits to an employee who had transferred to the business as a result of a TUPE transfer 10 years previously.

Amdocs Systems Group Ltd v Langton UKEAT/0093/20 and UKEAT/0210/20

Facts

The claimant was originally employed by Cramer Systems Ltd in 2003. His offer letter and a benefits summary document provided to him when he joined the company both set out the terms of a long-term sickness absence scheme and the level of income protection payments (IPP) payable under the scheme. It included an ‘escalator’ payment of 5% per annum, applicable after the first 52 weeks of absence. The summary document stated that the operation of the scheme was governed by the terms of the group policy. His contract of service also set out the benefits to which he was entitled and included the PHI scheme.

Cramer was acquired by Amdocs Systems Group Ltd (ASG) as a result of a TUPE transfer in 2006, following which employees were advised (at a presentation and in a subsequent letter) that the IPP provision would not be affected. In 2007, the claimant signed a form to confirm that he wished to participate in the ASG income protection scheme.

In 2009, the claimant began a period of long term sickness absence and he subsequently started to receive IPP. He was informed in 2016 that the escalator payment had not been, and would not be, applied to the IPP on the basis that it had ceased to be payable under the scheme since 2008.

His claim to the employment tribunal for unlawful deductions from wages was upheld. The tribunal found that he was contractually entitled to have the escalator applied to the calculation of the IPP.  ASG appealed to the EAT.

EAT decision

The EAT has dismissed the appeal, upholding the tribunal’s finding that the claimant was contractually entitled to receive the escalator payment. Having examined the relevant documents the EAT was satisfied that the offer letter and summary of benefits were contractually binding, in addition to the contract of employment.

Despite the express wording in the summary document to the effect that the operation of the scheme was subject to the terms of the group policy, this did not limit the employer’s obligation to make the payments. With reference to previous case law authorities on the provision of PHI benefits, the EAT found that in order to rely on a term in an insurance policy to qualify or cut back on what other documents have expressly stated to be substantive entitlements, further steps would need to have been taken to bring those terms to the claimant’s attention. The claimant had not been given a copy of the insurance policy terms, or any other document setting out the specifics of those terms. In addition, the starting point for the incorporation of the policy terms would be the policy in force at the time the contract was entered into, which incorporated the escalator. If any less favourable terms of any future policy were to override the benefits in force at the time, this would require explicit language to that effect.

Consequences of this decision

This decision does not change the previously settled law on entitlement to PHI benefits, but serves as a reminder that tribunals will look very carefully at the wording of any contractual benefits. Any ambiguity in the wording of an entitlement will be resolved in favour of the employee.

In this case, the claimant’s entitlement to IPP, which transferred to the employer following a TUPE transfer some 10 years prior, was a very costly liability due to the length of the individual’s absence and the entitlement to an escalator payment. It illustrates the importance of a transferee checking the level of PHI (and any other) benefits available to transferring employees. It also highlights the importance of setting limitations on an employer’s liability to make PHI payments, subject to the terms of the applicable policy in force at the time the entitlement arises. 

This article is from the September 2021 issue of Employment and Immigration Law Update, our monthly newsletter for HR professionals. To download the latest issue please visit the newsletter section of our website. For further information please contact Liz Stevens or another member of Birketts’ Employment Law Team.