In Colt Technology Services Ltd v Brown the EAT was asked to look at how compensation should be awarded where the Claimant had made a choice as to the level of permanent health insurance (PHI) via the Respondent's flexible benefit scheme. 

It concluded that a decision to forego salary in return for maintaining PHI at the maximum level of 75%, rather than the minimum and compulsory level of 50%, was equivalent to the employee paying the insurance premium in respect of the 25% differential.  Accordingly, the Claimant should not be penalised for prudence in selecting the maximum level of cover and only the 50% compulsory insurance benefits would be deducted from his compensation.

Facts

The Claimant had suffered two breakdowns at work in 2012 and remained incapacitated.  He succeeded with complaints of disability discrimination.  When calculating his damages, the Tribunal noted that the Claimant had received PHI payments via an insurance scheme. These payments amounted to 75% of salary.  The Tribunal acknowledged that PHI for which an employer had paid the insurance premiums should be deductible from compensation (Atos Origin v Haddock).  However, where an employee has taken out insurance, the sums paid by the employee should not be deducted from the compensation because the employee should not be deprived of the benefit of their own prudence (Gaca v Pirelli General plc). 

Applying the "insurance exception" in Gaca, the Tribunal decided to reduce the Claimant's compensation by 50% rather than the full 75%.  It reached this decision because the compulsory level of cover under the Respondent's benefit scheme was 50%.  The Claimant had opted to receive a higher level of cover of 75% through a flexible benefit scheme.  By electing to receive 75% PHI benefits rather than 50%, the Claimant had given up additional salary.  Applying the principles outlined in a Canadian case (Cunningham v Wheeler) the Tribunal concluded that the Claimant had contributed indirectly to the insurance premiums and should not be penalised by deducting the 25% of benefits which represented his own contribution. 

EAT decision 

On appeal, the Respondent argued that the Tribunal should have deducted the entire 75% from the Claimant's compensation as this was a benefit that had been provided by the Respondent to the Claimant.  Through the flexible benefit arrangements, the Claimant had retained the default level of cover (which was set at 75%) so it was artificial to suggest that the Claimant had contributed to the cost of the benefit. The Claimant had avoided losses by receiving a payment equivalent to 75% of salary so to reduce compensation by 50% rather than 75% gave the Claimant a windfall in the Respondent's opinion. 

The Claimant accepted that he could not be compensated for loss that would be avoided.  However, insurance benefits represented an exception to that rule.  The Claimant's payslip showed that an adjustment had been made to his salary for the flexible benefit arrangements. The Claimant had made positive choices in relation to his flexible benefit arrangements (in terms of annual leave and pension) and had positively chosen to maintain the PHI at the maximum level of 75% rather than opting for the lower compulsory level of 50%.  The Claimant had effectively paid for the benefit by foregoing the salary that he would have received had he made a different choice.  

The EAT recognised that the Claimant had not paid premiums to the insurance company directly and that the Claimant had no contract with the insurance company.   However, they were persuaded that the Claimant had made an indirect contribution to the insurance premiums by examining how the flexible benefit arrangement worked. 

If the Claimant had elected to take a lower level of PHI benefits (the compulsory level of 50% or a slightly higher contribution of 60%) he would have received a higher salary.  The Claimant had chosen to retain the maximum level of 75% and had made other positive choices regarding the benefits that he would receive under the Respondent's flexible benefits scheme. 

There was documentation showing how the value of the Claimant's benefit choices was deducted from a total benefit allowance, resulting in a flexible benefit adjustment depending on the choices which had been made.  The choice of PHI of 75% rather than 50% was equivalent to the Claimant paying an additional 25% for the enhanced benefit arrangements.  This fell within the "insurance exception" in Gaca whereby, whilst the Claimant could not recover for loss that had been avoided, he should not be deprived of the benefit of insurance that he had paid for. 

Comment

This case was the first time that the application of the "insurance exception" had been considered in the context of a flexible benefit arrangement. 

Employers may not have appreciated that where the employee has chosen to receive a higher level of insurance cover by reducing their salary, only insurance payments set at the compulsory level will be deducted from the compensation awarded to the employee. 

Colt Technology Services Ltd v Brown