UK: Are Retirement Ages In PHI Schemes Age Discriminatory?

Last Updated: 28 April 2016
Article by Michael Bronstein, Ryan Carthew, Gilla Harris, Sarah Beeby and Virginia K. Allen

Mistakes by employers in relation to an employee's entitlement to PHI can be very costly. In one leading High Court case, Aspden v. Webbs Poultry & Meat Group (Holdings) Limited [1996] I.R.L.R. 521, an employee was awarded around three-quarters of their salary for each year up to their retirement age, in circumstances where the employer could not recover any of these payments from the insurer.

The 2012 Employment Tribunal decision in Whitham v. Capita Insurance Services Limited E2/2505448/112 was also costly for the losing employer. In this case, even though the insurer would no longer pay out to the employee under the PHI policy as the employee had reached the age of 55, the employer directly discriminated against the employee by refusing to make any further payments to him. The employer was unsuccessful in its attempt to justify the discrimination on the grounds of cost. Further, the Tribunal found that the employer indirectly discriminated against the employee on the grounds of age, as the employer did not transfer the employee to a PHI scheme which permitted payments up to age 65 as the employee was currently in receipt of benefits and not actually at work. This was costly to the employer as the quantum of a compensatory award in an employment tribunal is uncapped where the Tribunal decides that the claimant has suffered discrimination in any form.

Recently, in Smith v. Gartner UK Limited UKEAT/0279/15, the Employment Appeal Tribunal overhauled the approach taken in Whitham, the details of which we set out below. However, this decision must be approached with caution.

Ms Smith (Ms S) worked for a technology research company called Gartner UK Limited (G). In May 2003, Ms S first received a payment under G's PHI scheme because of her ill health. The terms of the PHI scheme, which were drafted by the insurer, provided that Ms S could receive PHI benefits up to the age of 60 (this was not age discriminatory under UK legislation at the time the scheme was created). The supporting documents provided to Ms S by G, advised her that "[G] provides PHI to all employees...this insurance is provided to you at no expense" and "all benefits offered are subject to the rules in force at that time".

In 2007, Ms S continued to be unwell and received an email from G advising her that the age limit prescribed by the PHI scheme would increase in accordance with UK legislative requirements. However, in 2014, Ms S was told that her benefits would stop at the age of 60. Ms S was unhappy because she believed that she was entitled to receive payment under the PHI scheme until she was 65. In consequence, Ms S brought claims against G for direct age discrimination and an unlawful deduction of wages.

The Employment Tribunal struck out both of Ms S's claims at a preliminary hearing on the basis of written submission received by the parties. The applicable terms to Ms S's claims were those in force at the time that she first received PHI insurance in 2003 and on those terms there could not have been an unlawful deduction of wages. In addition, G had not directly discriminated against Ms S on the grounds of her age, as the reason not to pay her until the age of 65 had nothing to do with her age but instead was due to the terms and conditions of the PHI scheme which required her to be actively in employment before making any such insurance claim.

Ms S appealed to the Employment Appeal Tribunal and her appeal was rejected. First, the supporting documentation provided to Ms S by G about the PHI scheme was clear: G had agreed to provide insurance cover to its employees from an external provider and not to provide insurance cover itself. Further, the 2007 email did not validly vary the terms of the PHI scheme and change the age limit to 65. Second, for similar reasons, Ms S's treatment was not discriminatory. The terms of the PHI scheme were drafted by the insurer and not by G.

The Employment Appeal Tribunal also considered the issue dealt with in Whitham, as to whether the employee should have been entitled to be transferred to another PHI scheme which would have allowed her to receive PHI benefit until the age of 65. The Employment Appeal Tribunal held that Ms S did not have this entitlement because she did not meet the requirements of the new PHI scheme: Ms S was already claiming under the previous policy and she was not actively in employment at the time she made her claim (a key term under the new PHI scheme).

It remains unresolved whether an employer should address the fact that PHI cover taken out before a particular discrimination law came into force becomes potentially discriminatory after a new law is introduced. The case also did not address if an employer can introduce more favourable PHI for its employees that is not available to those employees who are already claiming under the previous scheme.

Learning points

  • Take a fresh look at your PHI scheme wording to make sure that it is drafted appropriately or reconsider the terms of your PHI scheme arrangements with your insurance provider.
  • If your business ever considers terminating the employment of an employee who is currently in receipt of PHI benefits or is in the process of making such a claim, we strongly recommend that you seek legal advice straight away.
  • Please also take heed if you intend to rely on the decision in Smith. It is rare that an employment tribunal will strike out a discrimination claim at a preliminary hearing stage, without hearing further evidence. It may be that Ms S's claims would have been decided differently if the Tribunal had considered all the available evidence at a full hearing.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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