Importance of Clear Contractual Terms in Employment

The case of Amdocs Systems Group Ltd v Langton case reinforces the necessity of clear contractual wording in relation to insurance backed benefits and for undertaking proper due diligence on a TUPE transfer.

When Mr Langton was employed by Cramer Systems Ltd, he received an offer letter, a summary of the of benefits offered and an employment contract. The offer letter and the summary of benefits set out the terms of a long-term sickness absence scheme and the level of income protection payments (IPP) payable 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 respect of its obligation to pay IPP, which included the escalator. The employment contract expressly incorporated the terms of the offer letter and summary of benefits.

In 2006 Amdocs Systems Group Ltd (ASG) acquired Cramer and Mr Langton transferred to ASG under TUPE. ASG told the transferring employees that the IPP provision would not be affected following the TUPE transfer and this was confirmed in a subsequent letter. Mr Langton also signed a form confirming that he wished to participate in ASG's income protection scheme.

In June 2009 he became unwell and went on long-term sick leave. From November 2009 he began to receive IPP, paid through PAYE. In November 2016 Mr Langton was informed that he was not entitled to the escalator 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, Mr Langton made a claim for unlawful deduction from wages relating to the failure to pay the escalator. The tribunal agreed with him and found that Mr Langton was contractually entitled to have the escalator applied in the calculation of the IPP. As the insurance put in place by ASG did not cover the escalator, the decision meant that the company would have to pay the difference between what the insurance policy paid out and what Mr Langton was entitled to under his contract of employment.

ASG appealed unsuccessfully. The EAT concluded that the offer letter and summary of benefits were contractually binding as they were incorporated into Mr Langton's contract of employment.

The court did not accept that the wording in the summary of benefits limited ASG's obligations to make payments to the level of Mr Langton's entitlement under the insurance policy. Mr Langton had not been given a copy of the insurance policy terms or any other document which set out the specifics of those terms. If ASG wanted its obligations to be limited to anything paid out under the insurance policy, it should have taken further steps to bring that particular term to Mr Langton's attention. The general wording in the summary of benefits was not sufficient.

This decision reminds us that when describing insurance backed benefits, the contract of employment should be clear and not promise more than any underlying insurance policy will deliver. It also highlights the importance of due diligence when purchasing a business.

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Although every effort has been made to ensure the accuracy of the information contained in this blog, nothing herein should be construed as giving advice and no responsibility will be taken for inaccuracies or errors.

Copyright © 2021 all rights reserved. You may copy or distribute this blog as long as this copyright notice and full information about contacting the author are attached. The author is Kate Russell of Russell HR Consulting Ltd.