Permanent health insurance (PHI) is a benefit provided by some employers for their employees in case they are unable to work, following an injury or illness. If that happens, the policy then pays out a percentage of salary (somewhere between 50 and 70 per cent) which is tax-free, usually after a defined period of sickness absence.
Most employers who provide this sort of benefit do so by taking out a policy with a PHI provider, usually a large insurance company. It is obviously a cheaper way of providing protection than doing it themselves, but unfortunately it is often this set-up that gives rise to the legal problems.
When is someone "incapable" of doing their job?
The definition of what amounts to incapacity under a policy (and therefore entitlement to benefits), is usually contained in the PHI policy itself. Sometimes, it stipulates that an employee "is unable to follow their normal occupation".
Although it will often be self-evident what that means, the phrase "normal occupation" can cause difficulties, particularly if the employee's duties changed because of their illness, before their sick leave started.
However, the courts have tended to come down in favour of employees when interpreting the phrase "normal occupation", suggesting it means an employee who is no longer capable of carrying out the duties which would enable them to do their current job, whether full-time or part-time.
If the scheme policy states that benefits are only payable if the employee "is unable to follow any occupation", it is much less likely to pay out. For example, it could refuse to provide payment to a seriously injured senior lawyer who was not able to work in the office, but who was able to work from home even if it was doing something as menial as stuffing envelopes.
Take the 2003 case of Walton v Airtours plc. Under the PHI scheme, Mr Walton was entitled to receive benefits if he was "totally unable, by reason of illness or injury, to follow his occupation." He contracted chronic fatigue syndrome and after two years of receiving benefits, the insurer referred Mr Walton to a consultant neurologist who concluded that he was "certainly not unfit for any type of work".
The insurer then told Airtours that it was going to stop paying out benefits, and Airtours in turn told Mr Walton that it was terminating his employment. He claimed wrongful termination of contract and sought a declaration from a tribunal that he was entitled to the benefits under the policy because he was unable to "follow his occupation". He also claimed damages equivalent to the benefits until he was able to pursue his occupation.
And the Court found in his favour, saying that at the relevant date Mr Walton was capable of following an occupation that involved light sedentary work, provided that he was not required, at least initially, to work on more than a part-time basis and that the initial work was accompanied by a programme of rehabilitation. But without such a structured programme, he could not "follow his occupation" and was therefore entitled to the benefits.
What happens if the employer wants to terminate the contract?
Usually, if an employee's employment comes to an end, so does their entitlement under the PHI policy.
However, the courts have held in a number of cases that there is an implied term in the contract that once the employee has become entitled to the benefits the employer cannot dismiss them simply because they are unable to work, if the effect is to deprive them of those benefits.
What about age discrimination?
Since the 2006 age discrimination laws came into force employers cannot stop providing PHI to employees when they reach a certain age, unless they can objectively justify the treatment.
If the insurer refuses to provide cover for employees over a certain age, this may satisfy the requirement of objective justification, but even then employers should consider whether self-insurance is a viable option.
The alternative would be to remove the benefit for all staff but this could lead to claims for breach of contract, unless the payment is discretionary as opposed to contractual.
Employers therefore need to review policies that may historically have stopped providing benefits under PHI at a certain age if they want to avoid an age discrimination claim.
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The material factor defence in equal pay claims requires employers to show that the difference in pay between the woman and the man has nothing to do with her sex. In Fearnon and ors v Smurfit Corrugated Cases Ltd the Court of Appeal said that employers can only rely on the defence of red-circling for as long as the factor retains "the essential attributes of genuineness and materiality".
What happened?
Ms Fearnon and two colleagues brought equal pay claims, comparing their work with a manager, Wesley Warnock, who did broadly similar work to them but whose job and salary were protected under a red-circling arrangement, following a transfer in 1994 under the 1981 Transfer of Undertakings (Protection of Employment) Regulations (TUPE).
At a pre-hearing review, the women accepted that there had been good reasons for the arrangement when it had been introduced in 1994, but that there was no justification for continuing it. Smurfit argued that it had to protect Mr Warnock's terms and conditions under TUPE and that time was not a relevant issue.
The tribunal said that the reason for the difference in salary was the 1994 TUPE transfer. Noting that the women's case was premised on the length of time for which the red-circling had continued, it concluded that "the mere fact of the red-circling continuing" was not enough to "make a case for the claimant".
The Court of Appeal, however, agreed with the women. It made clear that the onus was always on the employer to establish a genuine material factor. The tribunal, though, had approached the issue as though the claimants "were required to show that the once genuine factor had transformed into something that no longer qualified for that description'. It was therefore up to the tribunal to examine not only the motive for the introduction of red-circling, but also the reason it had been continued.
The Court criticized the tribunal's approach even more, pointing out that it had not asked the company to produce evidence to justify continuing the practice. It had not considered whether the practice was in accordance with "current notions of good industrial practice". Nor had it asked the company whether it could have phased out the difference in pay levels or made adjustments in earnings to equalise the salaries paid to the women and their comparator.
Instead, the tribunal seemed "to have accepted without demur the unvarnished claim that the reasons for the red-circling continued to apply, unsupported as it was by any evidence. Given that, as we have said, the onus of establishing this central tenet of the respondent's case rested on the employers, we cannot accept that this was a correct approach".
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The law states that employers must allow employees to be represented by a colleague or trade union representative at a disciplinary hearing. The High Court has held in R (on the application of G) v The Governors of X school and Y City Council that, in certain circumstances, employees also have the right to be represented by a lawyer.
What happened?
G was employed as a music assistant at X school, but was suspended for allegedly kissing a 15-year old pupil. The school then asked him to attend a disciplinary hearing and told him that it had a duty to report him to the Secretary of State for Children Schools and Families to determine whether he should be prohibited from working with children in educational establishments under article 142 of the 2002 Education Act.
G's solicitors then asked to be allowed to represent him at the hearing, arguing that as the potential outcome could disadvantage him for the rest of his life, it would be a breach of his human rights not to be represented. The school refused and he was dismissed.
G lodged a request for a judicial review on the basis that the school's refusal to allow him legal representation and the section 142 referral were so serious as to constitute a "criminal charge against him" under article 6 of the European Convention on Human Rights, thereby entitling him to additional procedural protection. Alternatively, if the disciplinary proceedings could not constitute a "criminal charge", he argued that they constituted "the determination of his civil rights and obligations" under article 6(1) of the Convention and he was entitled to legal representation to protect those rights.
The judge rejected G's argument that the internal disciplinary proceedings amounted to a "criminal" charge because the purpose of section 142 was "preventative and protective and not punitive". However, although the standard was therefore a civil, not a criminal one, the court accepted G's alternative submission that "by reason both of the serious nature of the allegations of misconduct and the severity of the consequences" of a section 142 direction he was entitled to "a commensurately enhanced measure of procedural protection".
The judge concluded that the gravity of the allegations made against G, along with the very serious impact upon his future working life of a potential section 142 direction were such that he was entitled to legal representation at the disciplinary and appeal hearings. He "could not fairly be expected to represent himself, and being accompanied by a trade union official or a work colleague (even if available) was not sufficient".
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The Government has just published its long awaited Equality Bill. It is expected to receive Royal Assent in spring 2010, with most provisions coming on line in October 2010.
The main provisions include:
- Putting a new duty on the Government and key public bodies to consider what action they can take to reduce the socio-economic inequality people face when making strategic decisions about spending and services.
- Requiring employers with 250 or more employees and public bodies with more than 150 employees to report on the gender pay gap, but not before 2013.
- Outlawing secrecy clauses in contracts that "gag" employees from discussing their pay.
- Banning age discrimination against people aged 18 and over outside the workplace, where goods are bought, and services provided, such as in shops, hospitals, and when buying financial products.
- Allowing employers to choose to take positive action to appoint a person from an under-represented group, provided candidates are equally suitable, if they want to. Positive discrimination will remain illegal.
- Banning private members' clubs from discriminating against members or their guests, although same sex clubs, gay associations, clubs for people of a particular religion, etc, will still be allowed.
- Replacing current duties on public bodies with a new streamlined and strengthened equality duty, which will be extended to also cover sexual orientation, gender reassignment, age, and religion or belief, so that people get fairer opportunities and better public services.
- Making it clear that public bodies can use procurement to drive equality when they are buying goods and services from private sector firms. This will be consulted on over the summer.
- Strengthening the powers of employment tribunals;
- Extending the law that bans discrimination by association.
- Strengthening protection from discrimination for disabled people.
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