Ambiguous contractual terms will favour the employee

The Court of Appeal had to consider whether an employer was liable to pay the level of income protection payments (IPP) contained within an offer letter and summary of benefits despite them no longer being included within their insurance policy.

In the case of Amdocs Systems Group Ltd v Langton, the claimant had been employed since 2003. When he started, he was given an offer letter and summary of benefits, which included entitlement to a long-term sickness absence income protection scheme. The contract also stated that there was an “escalator” in place of 5% per year, to be applied after the first year. At the time, an insurance policy was in place which covered any payments under the scheme.

In 2006, his employment transferred to another organisation under TUPE rules, but the IPP provision under the existing contract continued. In 2009, the claimant was absent from work for an extended period, triggering IPP payments. However, in 2016, he realised that the escalator payments outlined in the original policy had not been included. When he raised the issue, he was informed that these had ceased in 2008 when it was removed from the insurer’s policy, leading him to raise a claim for unlawful deduction from wages.

The employment tribunal (ET) decided that he was contractually entitled to the escalator, so upheld his claim. However, the respondent appealed to the EAT, arguing that their documentation included a clause which gave them the right to change the benefit provider and vary or amend the extend of the cover from time to time. It also argued that their payment obligations were limited to the amount covered by the insurance policy.

The EAT also rejected the respondent’s argument, concluding that the offer letter and benefits summary formed part of the overall contract, so payment of the escalator was included in his contractual entitlements. The EAT highlighted that any limitation of the insurance policy and associated benefits must be unambiguously and expressly communicated to the employee. In this case, the claimant had not even been provided with a copy of, or told how to access, the insurance policy, so had no way to know of any potential limitations.

The Court of Appeal agreed with this judgment and reiterated that the original offer letter was very clear and included details of the escalator, which supported the argument that it was a contractual entitlement. It further agreed that where there is ambiguity in the interpretation of contractual terms, this should be resolved in favour of the employee, as per other case law precedents. The CoA outlined that it was the employer’s responsibility to procure the necessary insurance policy to cover contractual entitlements, but this this would not affect employees’ benefits.

The case serves as a good reminder of the importance of ensuring contractual wording is clear and relevant. Where changes are made to any contractual entitlements, these should be fully discussed with affected employees and, where necessary, updates made, in writing, to the contract of employment. Doing so helps prevent disputes such as this and enables all parties to easily understand their rights and entitlements.

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