Group Income Protection is designed to help employers manage long term sickness absence more effectively and is a valuable tool for staff attraction and retention-especially important as UK employers come out of recession. By providing a continuing income for employees who are unable to work as a result of illness or injury, employers can help to financially support them through what can be an emotionally and financially stressful time. The paucity of state benefits and the increasingly difficult qualification process has recently enhanced the need for this benefit. However, employers should be aware: the employment law aspects of Group Income Protection mean that for the unprepared and disjointed employer, promising to provide Group Income Protection could have unexpected and costly consequences.

This article considers some important employment law issues that employers and their advisers should be aware of when setting up and running a Group Income Protection scheme and aims to highlight some simple steps to make sure that the benefit is successfully run and adopted as part of a wider employee engagement, health and wellbeing programme.

SETTING UP A GROUP INCOME PROTECTION SCHEME

The Group Income Protection policy documents set out the rights and obligations of the employer and the product provider whilst the contractual obligations owed by an employer to its employees are typically set out in the Group Income Protection documentation produced and issued by the employer. This can include the employee’s employment contract, the staff handbook, an employees’ benefits guide and/or in a document specially produced for the Group Income Protection scheme.

It is important that employers work closely with their advisers to ensure that Group Income Protection benefits are appropriately communicated and any literature issued to employees by employers are consistent with the policy documentation issued by the product provider. If the literature issued to employees is not consistent with the Group Income Protection policy documentation, and an employee is offered more protection in the literature issued by the employer, the employer will be forced to self-fund any uninsured liability.

Tip:

• Group Income Protection literature issued to employees should always state that it is subject to the terms of the Group Income Protection policy and that in the event of an inconsistency, the terms of the Group Income Protection policy will prevail.
• Employers should also reserve the right to vary the terms upon which the Group Income Protection benefit is provided and/or withdraw the benefit at any time.
• Any restrictions or limitations must be brought to the attention of the employee.    

It is also important that employers ensure that the terms of the Group Income Protection Scheme are consistent with its other policies, processes and procedures. In particular, it is worth reviewing the employer’s stance on long term absence, capability dismissal, ill health retirement, etc. to make sure that there are no inconsistencies.

Tip:    

• If the terms of the Group Income Protection scheme change or the product provider changes, employers should review all documentation relating to long term absence due to sickness to ensure that there are no inconsistencies.

MAKING A CLAIM

An employer and employee owe each other a duty not to do anything that is likely to destroy or seriously damage the relationship of trust and confidence between them. In the context of Group Income Protection, this means that if the Group Income Protection benefit is contractual, employers must take all reasonable steps to ensure that the benefits are paid. What constitutes ‘reasonable steps’ will differ depending on the facts but it has been found to be anything from appealing a product provider’s decision to initiating legal proceedings against the product provider on behalf of the employee.

Tip:  

• Make sure that Group Income Protection literature issued to employees clearly states that the employer is not required to take any steps (including without limitation, litigating on the employee’s behalf) to ensure that the benefits are paid.

In the majority of cases it is in the best interests of the employer, the employee and the product provider that the employee returns to work. From the point of view of the employer, not only do they get their employee back but a bad claims experience can lead to higher premiums on renewal of the policy. Good rehabilitation services early in the absence can have a significant impact here. The quality of the rehabilitation service and the claims management approach adopted by the product provider should be carefully assessed by the employer when choosing a Group Income Protection product provider.

GROUP INCOME PROTECTION AND DISMISSING AN EMPLOYEE

Stemming from the mutual duty not to act in a way that is likely to destroy or seriously damage the relationship of trust and confidence, an employer should be careful about dismissing an employee if the consequence is that the employee’s Group Income Protection payments come to an end.

In an employment tribunal case, it was held that once an employee is receiving benefits due under a Group Income Protection scheme an employer cannot dismiss the employee simply on the grounds of his continuing incapacity to work –  the employer must have a ‘good cause’ to dismiss the employee. Subsequent cases have indicated that ‘good causes’ include gross misconduct, repudiatory breach (i.e. the employee does something that suggests that they intended to end the contract of employment) and genuine redundancy situations.

As part of assessing a claim where the employee is receiving Group Income Protection, an Employment Tribunal will also consider the reasonableness of the approach taken and the documentation of decisions will be scrutinised. Therefore, ceasing an employee’s contract in this context must be properly thought through, it is important that the decision making process is clearly documented and, if need be, professional legal advice should be sought.

Tip:    

• Make sure that Group Income Protection literature issued to employees clearly states that the employer has the right to terminate the employment contract notwithstanding the Group Income Protection benefit.

Group Income Protection is an incredibly valuable and meaningful benefit but it is clear that employers need to be aware of the obligations that the law imposes on them. The key is to manage the expectations of employees appropriately at all stages – from the outset all the way through to when a claim is made.

If employers carefully review their paperwork and put in place the necessary processes and procedures relating to long term sickness absence this can be easily achieved and a large amount of the perceived risks associated with Group Income Protection can be effectively avoided.

This article is based on Canada Life Limited’s understanding of applicable English employment law as at March 2014 and it is provided solely for general consideration. No action should be taken or refrained from being taken without prior consultation of professional advisers. Canada Life Limited takes no responsibility for action taken based on the contents of this article.

Paul Avis (Marketing Director, Canada Life Group Insurance) and Vanessa Cowling (Solicitor, Canada Life Limited) provided these insights as to what all employers need to know to successfully run a Group Income Protection scheme.