Employers don’t have a general duty to care for their staff’s economic
security. But it could be risky to offer them no advice at all on valuable
contractual benefits
Scally v Southern Health
and Social Services Board [1991] IRLR 522 was a case in which four doctors
claimed their employer failed to inform them that they could purchase extra
years of pension entitlement on favourable terms. The doctors were not told
about the scheme until it was too late to take advantage of it.
The House of Lords decided there is an implied obligation on an employer to
bring a contractual right to employees’ attention, to enable them to benefit
from it, where the following criteria are satisfied:
– The right was negotiated collectively rather than individually, or it is
incorporated from a separate document
– It is valuable and depends on action being taken by the employee
– The employee can’t reasonably be expected to be aware of the right without
being told about it.
This meant that the employing health authority had an implied obligation to
inform the doctors of their right to purchase extra pension, and it was liable
for the financial loss that its failure to do so had caused them.
However, subsequent cases have shown that the criteria set out in Scally are
rather narrow and are not always applied. Recently, the Court of Appeal poured
cold water on the more radical suggestion that there is a general implied duty
on employers to take reasonable care for their employees’ economic wellbeing
(Crossley v Faithful & Gould Holdings Ltd [2004] IRLR 377).
This case concerned a senior employee, Mr Crossley, who had a nervous
breakdown and opted to take early retirement. Unfortunately, this decision
resulted in him losing valuable benefits under a permanent health insurance
(PHI) scheme. Crossley claimed his employer had breached an implied contractual
obligation by failing to warn him of the detrimental effect his resignation
would have on his rights.
Rejecting the claim, the Court of Appeal refused to extend the law beyond
the House of Lords’ statement in the Scally case. It felt that the implied term
contended for would impose an unfair and unreasonable burden on employers.
Moreover, it pointed out that an employee’s financial wellbeing could easily
conflict with that of the employer, such as where a decision has to be made on
whether to make a particular member of staff redundant.
In Crossley’s case, the court concluded that as a director and senior
employee of the company, he could be expected to familiarise himself with the
terms of the PHI scheme. Moreover, he had access to the advice of the insurance
broker who had arranged the scheme. The court did, however, stress that
employers who expressly take responsibility for giving advice are under a duty
to take reasonable care in doing so.
The overall message is that employers are not financial advisers, unless
they satisfy the Scally criteria. For example, witness another recent case
concerning a London police officer who wanted to transfer to Northern Ireland
(Lennon v Commissioner of Police of the Metropolis [2004] IRLR 385). The HR
professional who handled his transfer arrangements assured him that his housing
allowance would not be affected by a short break before joining the Northern
Ireland force. But that advice was wrong. The officer’s continuity of service
was broken, meaning he lost his right to an allowance. The Court of Appeal held
that the Commissioner of Police was liable for the economic loss resulting from
negligent advice.
It would be a mistake for employers to be over complacent about this issue.
Many organisations operate remuneration schemes containing ‘small print’
conditions on the ability of staff to enjoy or maximise particular benefits. If
you are a prudent employer, you should be careful to bring such provisions to
the attention of your staff by means of induction sessions, explanatory
booklets and the like.
By Gareth Brahams, Employment partner, Lewis
Silkin
