Amdocs Systems Group Ltd v Langton – the financial risks for employers of uncertain and ambiguous contractual terms

Mr Langton was employed by Amadocs Systems Group Ltd (“ASG”) predecessor CSL in 2003. In 2006, CSL was acquired by ASG via a TUPE transfer.

When starting employment, he was provided with an offer letter, a contract and a document setting out a summary of the benefits he was entitled to which were included in a staff handbook manual. One of the benefits he was entitled to was membership of the employer’s long-term sickness scheme which entitled him to income protection payments (“IPP”). CSL stated that it had insurance cover for IPP, including the escalator. The employer was entitled to change the benefit provider or change the extent of IPP cover. However, Mr Langton was never provided with the staff handbook manual or informed of any amendments to the IPP cover.

Following the TUPE transfer, ASG confirmed that the IPP provision would not be affected. In 2008, ASG changed insurance provider and bought in a policy which had no escalation rate. No employees were told of the change and no employee contracts were amended to reflect this change.

Mr Langton started a period of long term sick leave in 2009 and noticed that his payments had not been escalated by 5%. It was only at this point in that that Mr Langton was informed that the escalator had ceased in 2008.

He brought a successful claim for unlawful deduction from wages in the Employment Tribunal.

ASG appealed in the Employment Appeal Tribunal (“EAT”) and Court of Appeal.

EAT and Court of Appeal Decision

The EAT and Court of Appeal found that the employer was liable to pay the level of IPP set out in an offer letter and summary of benefits provided by the employee’s original employer prior to a TUPE transfer. This was the case even though those benefits were no longer covered under the employer’s insurance policy.

In making this decision, the EAT and Court of Appeal primarily based their decisions on what current case law states in relation to the interpretation of ambiguous and uncertain contractual clauses. The position is that if there’s any ambiguity at all as to whether an employer’s obligation to provide benefits is limited by reference to specific terms of the employer’s insurance cover, any such ambiguity is to be resolved in favour of the employee.

What should businesses consider

It is crucial that employers must provide clear and certain terms in any documentation relating to benefits provided to employees.  If an employer wants to limit or amend their obligations to make such benefit payments, this must be explicitly communicated to the employee. Any uncertainty will be construed in the employee’s favour. Where an employer provides benefits under an insurance plan, it may be personally liable to make payments if it is not clear enough what is being provided.

This case also highlights the importance of due diligence when employers purchase a business and inherit new employees on a TUPE transfer.  It is important that employers take particular steps to ascertain what their liabilities could be upon the transfer as they could find themselves liable to make payments under a historic insurance policy to which they were never a party.

If you would like to discuss any of the above matters please contact one of our Employment experts on 0161 832 3434.