335: The dangers of benefits in offer letters

In the recent case of Amdocs Systems Group Ltd v Langton, the Employment Appeals Tribunal (EAT) ruled that an employer was contractually liable to make Permanent Health Insurance (PHI) payments as set out in an offer letter and summary of benefits, even though the ‘escalator’ part of these payments was not covered by its underlying insurance policy.

When Mr Langton began his employment with Cramer Systems Ltd in 2003, he was given an offer letter and summary of benefits which both set out details of the long-term sickness absence scheme and the level of income protection payments (IPP) payable under it. Both documents referred to an ‘escalator’ of 5% per annum which would apply after 52 weeks. At that time, Cramer Systems had insurance covering these IPPs, including the escalator element. In 2006, Mr Langton’s employment transferred to Amdocs Systems Group Ltd under TUPE. In 2007, Amdocs confirmed in an HR presentation, subsequently backed up in writing, that the IPP provision would not be affected by the transfer, and Mr Langton signed a form stating that he wished to continue to participate in the scheme.

Mr Langton began a period of long-term sickness absence and later discovered that the 5% escalator was not being included in his IPPs. Amdocs informed him that he was not entitled to the escalator as it had ceased to be part of the scheme in 2008, and his claim did not commence until November 2009.

In 2018, Mr Langton brought a claim in the Employment Tribunal for unlawful deductions from wages relating to Amdocs’ failure to pay the escalator. The Employment Tribunal found that based on the documentation provided to him he was contractually entitled to the escalator and upheld his claim.

On appeal, the EAT agreed that the offer letter and summary of benefits were incorporated into Mr Langton’s contract of employment and were therefore contractually binding. Although Amdocs had tried to rely on general wording which limited liability to the terms of its insurance policy, this term had not been unambiguously and expressly communicated to Mr Langton. Since Amdocs’ insurance policy did not cover the escalator, this meant that the company would be liable for the additional payments due.

This case illustrates that any uncertainty or ambiguity surrounding contractual entitlement to benefits will be resolved in favour of the employee and against the employer. It is therefore important to state expressly and consistently in the contractual documentation provided to employees as well as any other communications to them that any benefit by way of an insurance scheme will be limited to the terms of the underlying insurance policy in force at the relevant time. This case also highlights the importance of undertaking proper due diligence prior to a TUPE transfer in order to assess the level of IPP and other benefits provided by the transferor.