Claims for PHI benefits: not unlawful deductions after employment ends

Permanent Health Insurance schemes are not as common as they used to be but they do seem to throw up a number of difficult issues.

In the case of McMahon v AXA ICAS Ltd , the Claimant received an offer letter which made reference to becoming entitled to benefits under a PHI scheme after her probationary period. The Employee Handbook, which was stated to “form part of her contract of employment” also referred to the PHI scheme. There was no wording (as there often is and as is recommended) to the effect that membership of the PHI Scheme was subject to the insurer accepting liability.

Due to human error, the Claimant had been omitted from the policy and, having been long-term sick brought a claim against the employer for the PHI payments (75% of salary) that she should have received during her employment, and later amended her claim to include payments she claimed that she should have received after her employment had ended. She raised these claims as unlawful deduction from wages claims.

The Employment Appeal Tribunal:

• Upheld her claim in respect of the amounts due to her during her employment. There was not sufficient wording in the offer letter or handbook to make the payments conditional on her being entered into the scheme or the insurer making the payments to the employer for the employer to pass on. Since she met the criteria for payments, 75% of her salary was properly payable to her by the employer and its failure to do so amounted to unlawful deduction from wages
• Did not uphold her claim for unlawful deduction of wages in respect of the period after she left the employment. The case of Aspden v Webbs Poultry and Meat Group (Holdings) Limited (1996) established that there is an implied term that, where an employee was covered by a PHI scheme, the employer could not terminate employment such as to prevent future PHI payments to them (save for gross misconduct). The Claimant therefore argued that had she been receiving PHI payments (as should have been the case), her employer would not have been able to dismiss her, so her claim for unpaid PHI should therefore continue beyond her dismissal date. The EAT disagreed and said that a claim for unlawful deduction from wages could only relate to a period during which there was a contract of employment in place.

Whilst it might not be too controversial for a decision to conclude that wages claims need to relate to a period of employment, the decision might have been more interesting if the Claimant had refused to accept the termination of her employment and insisted that the employment contract remained alive.

The decision is a useful reminder to employers who do provide PHI schemes (or other forms of insured benefit) to ensure that the contractual wording makes clear that the benefit is provided subject to the rules of the scheme and subject to the decisions of insurers (and is not a simple promise by the employer to pay 75% of salary in the event of sickness).