Employer required to pay income protection benefits not covered by insurance policy

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Benefits and long-term health insurance

The Court of Appeals ruled that an employer was required to top up an employee’s income protection payments, even if the top-up payments were not covered by the terms of its insurance policy.

Contract documentation

Mr. Langton began working at Cramer Systems in 2003. He received a letter of offer along with a summary of benefits and an employment contract. The letter of offer and summary of benefits set out the terms of the income protection plan and the level of benefits payable. These included a reference to an “indexation” (or annual increase) of 5% per year. The employment contract stipulated that he was entitled to an income protection benefit, as stated in the letter of offer. The summary of benefits stated that the operation of the income protection plan was governed by the terms of the group policy and nothing in the summary took precedence over those terms.

When Amdocs acquired Cramer in 2006, staff were told it would not affect Income Protection benefits.

Income protection payments

Mr. Langon took sick leave in 2009 and later that year began collecting income protection benefits. In 2016, he discovered that indexation had not been applied to payments. When he asked the question, Amdocs told him that indexing was removed from policy in 2008.

Claim of illegal deductions

Mr. Langton brought an action in the employment tribunal for unlawful deduction from wages. The labor court ruled that he was contractually entitled to indexation and granted his request. The Employment Appeal Tribunal dismissed Amdocs’ appeal

Amdocs appealed to the Court of Appeal, arguing that the employment tribunal erred in finding that the benefits summary had contractual effect.

The Court of Appeal disagreed. She found that it was clear that the contractual terms were in the employment contract, the letter of offer and the summary of benefits which was clearly incorporated into the letter of offer. The letter of offer promised income protection payments of 75% of salary but referred to the summary of benefits for more information. The summary of benefits, which included indexation, was quite clear and therefore “suitable 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 Team was governed by the terms of the group policy and nothing in the Summary overridden those terms did no difference. If there was anything in the insurance documents as they stood in July 2003 that contradicted the express promise in the contract documents, it should have been brought expressly and unambiguously to Mr. Langton’s attention.

What does this mean for employers?

Employers should ensure that contract documents do not provide employees with a greater entitlement to benefits than is covered by the underlying insurance policy. This includes not only the employment contract itself, but any other documents that may be incorporated into the employment contract, such as staff manuals. Furthermore, it is always preferable to include an express clause in the contract of employment clearly stating that the right to any benefit is subject to the rules and limits of the insurance policy, as amended from time to time, and to bring these rules and limits to the attention of the employee. Mere mention of the insurance policy is unlikely to be sufficient.

Amdocs Systems Group Ltd v Langton

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