The claimant started employment with Cramer Systems Ltd in 2003.  His offer letter outlined a summary of benefits which included income protection payments when there was long-term sickness as well as the terms and conditions of his contract.   The detail of the income protection was that it would begin after 13 weeks of sickness and would be paid at 75% of annual salary which also took into account any state benefits being received. Additionally, there was an ‘escalator’ of 5% per annum after the first year of sickness. The basis of this was that Cramer Systems Ltd had established an insurance plan that covered both the income protection payments as well as life insurance.

In 2009 the claimant was diagnosed with a long-term illness and was off work.  He started to receive the payments in November 2009. The case arose after his employment was transferred to the respondent in 2015 (from Cramer Systems Ltd).   The claimant discovered that he was not receiving the escalator at this point. When this was raised, he was informed by the respondent that it had been removed from the company’s insurance cover in 2008. This led the claimant to bring a claim for unlawful deduction from wages.

At first instance, the claimant’s claim was upheld. It was held that the summary of benefits alongside the contract outlined the whole contractual entitlement. Therefore, the contractual entitlement also included the escalator. The ET did state that there was reference to an insurer, but this did not mean there was a caveat to the contractual term that there had to be some insurance in place for the payment. The respondent appealed the decision.

The basis of the appeal was that the construction of the contractual document ought to have been such that it was limited to the insurance cover that was in place. The EAT dismissed this argument and the appeal. It was held that where there is any ambiguity in a term which purports to confer a benefit onto an employee then it should be interpreted in favour of the employee. It was held that to limit exposure then the employer should expressly communicate to the employee the nature of the limitation.  This was not done so the escalator was a contractual benefit.

Practical Lessons

The important aspect coming out of this case is that contractual benefits will be construed in favour of the employee. This means that any ambiguity should be avoided, and clear limits must be placed on the benefits to be received by employees.  Indeed, the EAT made it clear that there has been a consistent approach when it comes to the contractual interpretation in such situations. This must be borne in mind when documentation is being drafted and sent out to prospective employees as was the case here in 2009.

https://www.bailii.org/uk/cases/UKEAT/2021/001237_19_2408.html