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• Speaker #0

  Today, in the Indicator HR and Employment Law podcast, we're discussing the judgment in the case of McMahon and AXA-ICAS Limited, in which the inner house of the Scottish Court of Session was asked to consider whether an employee can bring a post-termination claim for unlawful deduction from wages if payments due under a permanent health insurance scheme are not paid. M worked for a global provider of health and wellbeing services. M was dismissed in September 2013, following three years' ill-health absence. Prior to her dismissal, M brought a claim for unlawful deduction from wages arising from non-payment of permanent health insurance benefits. After her dismissal for incapacity, M applied to amend her existing unlawful deduction from wages claimed to include continuing unpaid post-termination permanent health insurance payments. The Employment Tribunal held that M had a contractual entitlement under the Permanent Health Insurance Scheme and noted that none of the documents detailing the scheme said that Permanent Health Insurance entitlement was conditional on an insurer accepting liability to make the Permanent Health Insurance payments. The Tribunal held the missing pre-dismissal Permanent Health Insurance payments were wages, therefore entitling M to bring an unlawful deduction from wages claim in relation to their non-payment. However, the Tribunal refused M's application to amend her claim to add post-termination payments and held that any liability for unlawful deduction from wages only continued up to the point of dismissal. Thereafter, any claim for post-termination non-payment of Permanent Health Insurance would need to be brought as a claim for damages for breach of contract in the civil courts. The Employment Appeal Tribunal agreed. M successfully appealed to the Inner House of the Scottish Court of Session. The court noted that as the legislation defines the phrase wages broadly to include any sums payable to the worker in connection with his employment, this could include Permanent Health Insurance payments. From this starting point, the court went on to hold that M's entitlement to Permanent Health Insurance benefits had survived her dismissal. The employer had failed to secure insurance cover for the Permanent Health Insurance benefits, meaning it had effectively placed itself in the position of an insurer promising to pay certain benefits for so long as the eligibility conditions were met. As incapacity for work was one of those eligibility conditions, it made little sense if that condition alone allowed the employer to dismiss and stop the Permanent Health Insurance payments. The court explored two main legal analyses that might justify this outcome, though ruling the two approaches were not mutually exclusive. Firstly, drawing a distinction between the employment relationship and the contract of employment, and noting that while dismissal terminates the employment relationship, some contractual obligations can survive its termination. The court held that the Permanent Health Insurance scheme obligations were collateral to the employment relationship, that is, ran outside the main employment contract and did not depend on the continuation of the employment relationship, and that the qualifying illness triggered the employer's obligations. Therefore, the amendment M proposed to her claim - to add the missing post-termination permanent health insurance payments - did not amount to a damages claim but rather to a legitimate attempt to enforce the Permanent Health Insurance benefits promised in the contract. Entitlement to those benefits was not dependent on M continuing to work for the employer. Alternatively, another route to the same outcome would be to imply a term into M's employment contract to the effect that the employer could not terminate it for the purpose of depriving M of the permanent health insurance benefits. Accordingly, the employer's attempt to do so was invalid and a nullity which had no impact on its contractual obligation to honour the Permanent Health Insurance payments. The court sent the case back to the Employment Tribunal with a direction that the amendment to add the post-termination permanent health insurance payments should be allowed. Although Inner House of the Scottish Court of Session decisions are not strictly binding on the Court of Appeal and lower courts, they are of significant persuasive value and will often be followed by subordinate courts and tribunals. Look out for further episodes in this series to stay up to date on all things HR and employment law related.