Court of Appeal Upholds Entitlements of Employee on Long-Term Sick Leave

Many employers offer their staff the benefit of insurance-backed income protection schemes that provide them with financial security in the event of long-term illness. The legal effect of one such scheme came under analysis by the Court of Appeal in a case concerning an engineer who had been on sick leave for well over a decade.

The engineer went on sick leave in 2009, suffering from chronic fatigue syndrome, and had been off work continuously ever since. Throughout all but the first 13 weeks of his sick leave, he had claimed entitlements under his employer’s income protection scheme.

When he was taken on by the employer in 2003, his offer letter and the summary of benefits attached to it stated that, if he were off work sick for more than 13 weeks, the scheme would kick in and provide him with 75 per cent of his annual salary, less basic rate state long-term incapacity benefit, up to his 60^th birthday.

Crucially, the documents also contained an escalator clause by which the benefits he received under the scheme would increase by 5 per cent annually in order to provide him with some degree of protection against inflation. After discovering some years later that the escalator clause had not been applied to his benefits under the scheme, he launched Employment Tribunal (ET) proceedings.

The ET upheld his complaint that the failure to increase his benefits in line with the escalator clause amounted to an unlawful deduction from his wages. The decision, which was subsequently upheld by the Employment Appeal Tribunal, entitled him to compensation in respect of a two-year period prior to the date on which he lodged his claim. The ET was not empowered to make an award in respect of any longer period.

In its ruling, the ET found that the documents formed part of his employment contract and clearly set out his entitlements under the scheme. The employer’s plea that it had, prior to him going on sick leave, lawfully exercised its entitlement to unilaterally vary his contract by removing the benefit of the escalator clause was rejected. Its argument that its liabilities under the scheme were limited to the extent of its insurance cover also fell on fallow ground.

Dismissing the employer’s appeal against that outcome, the Court found that the entirely unambiguous documents were fit to be incorporated in his employment contract. There was nothing in his formal contract of employment that contradicted their terms. Even if the employer did have a contractual entitlement to unilaterally vary his contract, no such variation was communicated to him at the time.

The employer asserted that, given the low rates of inflation that had prevailed since he went on sick leave, the escalator clause was remarkably generous. Whether or not that was the case, however, the Court found that the clause represented what had been contractually agreed.