What should employers know to successfully run a group income protection scheme without running into legal problems? Paul Avis and Vanessa Cowling give their insights.
Group income protection (IP) is designed to help employers manage long-term sickness absence more effectively, and is a valuable tool for staff attraction and retention, which is especially important as UK employers come out of recession.
The paucity of state benefits and the increasingly difficult qualification process has recently enhanced the need for this benefit.
However, employers should be aware that the employment law aspects of group IP mean for the unprepared and disjointed employer, promising to
provide group income protection could have unexpected and costly consequences.
There are some important employment law issues that employers and their advisers should take into account when setting up and running a group income protection scheme and some simple steps that deserve highlighting to make sure that the benefit is successfully run and adopted as part of a wider employee engagement, health and wellbeing programme.
The group IP policy documents set out the rights and obligations of the employer and the product provider, while 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 IP 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.
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 and ill health retirement, to make sure that there are no inconsistencies.
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 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.
In most 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.
Stemming from the mutual duty not to act in a way that is likely to destroy or damage the relationship of trust and confidence, an employer should be careful about dismissing an employee if the consequence is the employee’s group IP payments come to an end.
Good cause for dismissal
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 (ie, 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 IP, 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.
Group IP is an incredibly valuable 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 IP can be avoided.
Paul Avis (marketing director, Canada Life Group Insurance) and Vanessa Cowling (solicitor, Canada Life Limited)
Headed up PFS for eight years
Questions over fairness
Support accessible from one place