The Employment Appeal Tribunal (EAT) has held in Amdocs Systems Group Ltd v Langton that an employer was liable to pay the level of income protection payments set out in an offer letter and summary of benefits provided by the employee's original employer prior to a TUPE transfer.

The "escalator" part of the payments was not covered by the employer's insurance, but the employer was still obliged to pay them.

The claimant was employed by Cramer Systems Ltd from 2003. He received an offer letter, a summary of benefits and a contract of service. Both the letter and the summary set out the terms of a long-term sickness absence scheme and the level of income protection payments (IPP) under it. These included reference to an "escalator" of 5% per annum which would apply after the first 52 weeks. Cramer had insurance cover in relation to its obligation to pay IPP, which included the escalator.

In 2006 ASG acquired Cramer and in 2007 an ASG HR representative gave a presentation in which they stated that the IPP provision would not be affected following the TUPE transfer. This was confirmed in a subsequent letter and the claimant also signed a form confirming that he wished to participate in ASG's income protection scheme. In June 2009 he began a period of long-term sickness absence and, from November 2009, began to receive IPP, paid through PAYE. In November 2016 the claimant was informed by ASG that the escalator had not been, and would not be, applied.

He was told that he was not entitled to it as it had ceased to be part of the IPP scheme in 2008 and he had not begun to claim under the scheme until November 2009. In 2018 the claimant brought a claim for unlawful deduction from wages relating to the failure to pay the escalator. The tribunal held that he was contractually entitled to have the escalator applied in the calculation of the IPP.

The EAT dismissed ASG's appeal. It held that the contents of the claimant's contract of service were contractually binding and the offer letter and summary of benefits were also contractually binding. ASG sought to argue that the words in the summary of benefits that "the operation of both schemes is governed by the terms of the group policies and nothing will override the terms of that document" had the effect of limiting its obligations to make payments to the level of the claimant's entitlement under the relevant insurance policy. The EAT dismissed this, holding that if reliance were to be placed on a term in an insurance policy as qualifying or cutting back on what the documents elsewhere have expressly stated were the benefit entitlements, further steps would need to have been taken to bring those particular terms to the claimant's attention. He had not been given the insurance policy terms or any other document which set out the specifics of those terms.

Finally the EAT held that if the words relied on by ASG had been sufficient to incorporate all the terms contained in an insurance policy, the starting point would be the policy in force at the time the contract was made (namely the one incorporating the escalator). Explicit language would have needed to be included for the less favourable terms of any future policy to apply.

Take note:  The decision in Langton serves as a useful reminder to transferees to check the level of permanent health insurance benefits provided by the transferor.  It also shows how important it is to make it clear in contractual documentation that any liability to make PHI payments will be limited to the amounts received from the scheme insurer to avoid any additional liabilities arising.

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