Do employers have continued liability for employee benefits previously delivered by a third-party provider?

The recent Employment Appeal Tribunal (EAT) decision of Adekoya v Heathrow Express Operating Company Ltd has highlighted the importance of ensuring that employee contracts and benefit promises are kept up to date and consistent with each other, to protect the employer from being left on the hook where a third-party provider withdraws a benefit delivered to the employer’s employees. It’s something that could affect any employer, and so it is important these are reviewed regularly.

The case details

The case concerned a benefit in the form of a valuable train travel discount scheme provided as part of the employer’s membership of the Rail Delivery Group (RDG). The scheme was also extended to employees who were made redundant, provided that they had more than five years’ service. It amounted to a lifelong discount on travel.

The benefit was delivered by another member of the RDG, called RST. Importantly, the terms and conditions provided to employees in which the right to the benefit was granted were different and separate to the agreement between the employer and RST, under which RST provided the benefit to the employees. That agreement allowed the benefit to be withdrawn in the future.

In 2019, RDG decided to withdraw the benefit from more recent employees who were made redundant, with the result that those employees who were subsequently made redundant lost their right to the travel benefit. A claim against the employer for breach of contract followed, which was defended by arguing that the agreement that the employer had entered into with RST had been incorporated into employees’ contracts, with the result that the provision allowing the benefit to be withdrawn had also been incorporated.

The EAT subsequently disagreed with the lower Tribunal and decided instead that the separate agreement between the employer and RST (which was not referred to in any literature provided to employees) had not been incorporated in the employees’ contracts. As a result, employees (and ex-employees) retained a right to the benefit from the employer, even though it was no longer provided by RST.

Why is this important to employers?

The decision should warn employers to check that where they enter into any agreement with a third party to provide benefits or services to employees and (as would usually be the case) it contains termination rights, the terms of that agreement are consistent with the contractual obligations owed to employees. Employers should consider steps to ensure that any benefits granted under, or incorporated within, their employment contracts are made specifically subject to the terms of any agreement between the employer and its third-party provider, so that they are not left liable to continue benefits in the absence of their provider.

Potential examples affecting employers could include the terms of third-party administration agreements under their medical benefit trusts (master trusts included) or the details contained in their life, critical illness or medical benefit insurance policies.

If you have questions or concerns about your contractual terms for employee benefits, please contact Kevin Gude.