Legal update: Can employers be responsible for the discriminatory effect of their income replacement policy?

30 October 2014

Hall v Xerox UK Limited

Can an employer incur liability if their income replacement policy (in this case effected with Unum to cover employees’ salaries in the event they are struck down by ill health and therefore off work for more than 26 weeks) potentially has a discriminatory effect, against one of their fixed term employees? 

A Claimant had suffered a hernia brought on by his work in repairing and maintaining photocopying equipment provided by Xerox (his employer) to Wigan Council. He was not eligible to benefit under the policy Xerox had taken out with Unum, because the unexpired portion of his fixed term was due to expire within the 26 week period. This would not have been the case had he been a permanent employee. 

First of all the EAT held that Unum was not acting as Xerox’s agent in this respect. It was not Unum’s role to fulfil any specific obligation of Xerox to any of its employees. What we had here was simply an insurance contract between Xerox and a third party. The consequences of the contractual arrangements may have had an effect on the employees at Xerox, but that was very different to saying Unum was the agent of Xerox for this purpose.

Secondly, the EAT said that the less favourable outcome of which the Claimant complained, was not caused by any act, or deliberate failure to act on Xerox’s part.  As the Employment Judge said in the original case, (paraphrasing slightly) the fact that the Claimant’s case for compensation from Unum was rejected, had nothing to do with any treatment meted out by Xerox: they were simply acting as Unum’s “messenger” for this purpose.

To many employers this will come as a welcome relief.  One only has to think of the consequences if the EAT had decided the other way, namely that the employer was responsible for the potentially discriminatory provision in their policy of insurance.  This is what the dissenting Judge (who was overruled) in the original Employment Tribunal case would have wanted. It would presumably have meant that in future, before effecting any policy of insurance of this type, the burden would have been on the employer to ensure every term could have no potentially discriminatory effect. As a result employers and/or their brokers may also have had to check all the alternative policies available on the market, to assess the extent to which some might have potentially discriminatory consequences, as against others which may not, and this may have been burdensome.  In its judgment the Appeal Court referred to 4 insurance companies – Unum and also Aviva, Friends Provident and Canada Life. But there may be others too, either now or emerging in the future.

Nonetheless, in practical terms this is still an issue employers should bear in mind. There was felt to have been a danger after the Aspden v Webbs Poultry case (which held there was an implied term necessary to give business efficacy to the contract, that the employer would not terminate the employment whilst the employee was incapacitated, since otherwise the employee would not continue to benefit under their PHI scheme) that employers’ interest in taking on these policies would seriously wane. In fact many employers have continued to offer this benefit, and for them, this case may be a salutary lesson as to what might have been, had it been decided another way.

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