Employers aren’t liable for insurance benefits which discriminate against certain employees, especially where there are no alternative insurance products in the market, so long as (and here’s the sting in the tail) they’ve explored what’s available in that market in the first place.
The case of Hall v Xerox UK Ltd, decided by the EAT, emphasises the need for employers to audit their contracts to make sure they are not responsible to employees for the 3rd party insurance benefits they offer, and also to take steps to check that the benefits they offer are in line with the market. For this reason we offer an audit service, and strongly recommend that employers check their arrangements at least every 3 years.
Facts: This case looked at a situation where a fixed-term worker (Mr Hall) was unable to have permanent health cover (otherwise known as income protection cover) because under the insurance policy provided by Unum, he was disqualified for cover, because his contract came to an end before the 26 week qualifying period expired. Had Mr Hall been a permanent employee, he would have qualified for cover, as his illness lasted for longer than 26 weeks.
Question (1): It was accepted that Mr Hall had suffered a detriment because of his fixed-term status and the question was whether Xerox was responsible for this unfavourable treatment of Mr Hall under the Fix-term Employees (Prevention of Less Favourable Treatment) Regulations 2002. The EAT confirmed that Xerox wasn’t Unum’s agent and so could not be liable for Unum’s discrimination. Instead, the cause of the problem was Unum in refusing cover.
Question (2): However, Mr Hall also argued that Xerox should have found a better policy which would have covered fix-term employees in the same way as permanent staff. The EAT disagreed, because Xerox had no choice: its evidence was that there were no policies in the market which cover fixed-term employees in the same way as permanent staff. However the EAT also said that if there had been suitable policies available in the market for fixed-term employees, and Xerox had chosen not to offer one, then Xerox (not the insurer) would have caused the problem by choosing cover which discriminated, and would then have been liable unless it could have justified its choice. Unfortunately, the EAT decided not to consider whether the additional cost of a non-discriminatory policy would have justified such a choice, because in this case, there were no other policies available – although (for a company with the size, resources and bargaining power of Xerox) the cost differential ought to be minimal.
Comment: This emphasises another point which (fortunately for Xerox) did not come up in this case: some employment contracts (especially older ones) are drafted so that the employer contracts directly with the employee to provide the employee with the benefit, and if the insurance policy that the employer takes out to back up its contractual obligation does not match that contractual obligation, then the employer has to meet any shortfall. If that situation had arisen here, Xerox would have been responsible for paying (say) 75% of Mr Hall’s salary (or whatever was the level of reduced salary payable by Unum as insurer) until he was able to work again or retired – potentially ruinously expensive if repeated for several people on PHI.
Lessons: Overall this case emphasises that an employer is not liable where a 3rd party benefit or policy discriminates, but only if:
- Its contracts are drawn up properly, and
- It has researched the market to check that it can’t purchase a policy which is not discriminatory.