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Home / News and Insights / Blogs / Employment Law / 110: Assessment of discrimination compensation

In Colt Technology Services Ltd v Brown, the Employment Appeal Tribunal (EAT) considered how to assess compensation for discrimination where an employee received permanent health insurance (PHI) cover under a flexible benefits scheme.

Under the Equality Act 2010, compensation for discrimination should normally only include loss actually suffered by the claimant. However, under the ‘insurance exception’, insurance pay-outs to which the employee has directly or indirectly contributed are not set off against their losses, otherwise the employer would benefit from the employee’s prudence in taking out insurance. This exception does not therefore apply where a permanent health insurance (PHI) policy has been arranged and paid for in full by the employer.

Mr Brown received PHI payments whilst on long term sick leave. The PHI scheme was part of the company’s flexible benefits package and had two elements: compulsory benefits, which included 50% salary protection; and flexible benefits, which included the possibility of enhancing salary protection to 60% or 75% (in return for lower pay), taking other benefits, or taking the flexible element as additional salary. The default position was that salary protection was maintained at 75%. Mr Brown had opted to rely on this higher default level of 75%. Following successful claims for harassment and disability discrimination against the company, an issue arose as to the effect of Mr Brown’s PHI payments on his award of compensation.

In the Employment Tribunal, the company argued that the PHI payments of 75% of salary should be deducted in full from Mr Brown’s compensation because it had paid all the PHI premiums, and the insurance exception therefore did not apply. It was not in dispute that the company had paid all premiums for the PHI cover. However, the Tribunal agreed with Mr Brown that he had contributed indirectly by opting not to reduce the cover to 50%. It held that there was no material difference between an employee choosing to pay for enhanced protection out of salary received, and an employee choosing not to receive salary in order to obtain enhanced protection. The Tribunal concluded that Mr Brown should be treated as having paid for the additional element of protection (ie 25%) and that the amount of credit that should be given to the company against his loss of earnings was therefore 50%.

On appeal, the Employment Appeal Tribunal (the EAT) agreed with the Tribunal’s reasoning. The EAT rejected the company’s argument that all Mr Brown had done was choose from a menu of benefits. By choosing to have more than the minimum 50% salary protection and opting for the full 75% cover, Mr Brown had been paid less than he otherwise would have been and had therefore indirectly contributed to the cost of the insurance premiums.

This case confirms that where an employee has chosen increased PHI cover under a flexible benefits scheme, this is likely to be viewed as an indirect contribution to the cost of the insurance premiums and will not therefore be offset against compensation.

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