What happens when income protection terms change?

Merran Sewell explores whether changes to terms made by an insurer to an income protection scheme can limit an employee’s entitlement to payments

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A number of employers provide Permanent Health Insurance or similar long-term sick pay benefits for their employees which is funded through an insurance policy that the employer has arranged. 

Eligibility for payments under a scheme is usually subject to the employee satisfying certain medical criteria and typically those who qualify will be entitled to receive a fixed proportion of their salary while unfit for work. 

In Amdocs Systems Group Ltd v Langton the issue was whether an employee was entitled to rely on the description of the benefit in the job description and associated correspondence in circumstances where there had been changes to the insurance contract between the employer and the insurer that limited the amount of pay that the employee would receive.  

Upon commencing work in 2003, Mr Langton received correspondence from the employer which included a summary of benefits which made reference to a ‘Group Income Protection Scheme’. It was stated that his entitlement under the scheme would be triggered after 13 weeks of incapacity at which point, he would get 75 per cent of his wages. Importantly there was also reference to this payment being subject to a 5 per cent ‘escalator’ each year so that it was, to an extent, inflation proof. 

Langton was signed off sick from 2009 and subsequently received payments equivalent to 75 per cent of his wages under the scheme. 

However, after the business transferred in 2015 and enquiries were made about his entitlement under the scheme, he realised that the ‘escalator’ provisions had never been applied so there had been no annual increase to the amount of the payments. 

Langton brought a claim for the shortfall. In response, the employer disputed that there were any monies due as the entitlement to an annual increase in payments had been removed from the insurance policy in 2008.

The Court of Appeal upheld the Employment Appeal Tribunal’s decision that Langton had been entitled to rely on the description of the benefit in the documentation sent to him. This meant he was contractually entitled to the ‘escalator’ and annual increases in payments should have been applied. The wording in the summary of benefits was clear regarding the entitlement and there had been a continuing unlawful deduction from wages.  

The employer’s argument that the correct construction of the documentation was that its obligation was limited to the amount in respect of which was covered by the insurance was rejected. 

A reference to the benefit being insurance backed did not have the effect that the employer’s obligation was limited to the extent of that cover. Much clearer wording would be required to limit the entitlement in this way.

Key points

The decision is an important reminder that if the payment of long-term sickness benefits is to be linked to an insurance backed scheme it is essential that in the correspondence sent to the employee it is expressly referred to as being subject to any changes to the insurance policy and conditional on the payments being received from the insurer.  

As this case shows, where benefits of this nature are set out in writing at the start of employment it is likely that they will be contractually enforceable and in the absence of any express provision the courts are unlikely to imply a limitation. In the event that changes are required these will need to be communicated to the employee and agreement reached or steps will be needed to validly vary the contract. 

In the absence of any express limitation or variation of terms the practical impact is that the cost of the benefits will need to be met by the employer even if this was not the intention.

Merran Sewell is an employment partner at Gateley Legal