February 10, 2014

Compensation payments calculated on reduced salary were discriminatory

The Claimant began extended sickness absence during 2002, as a result of which she started receiving payments under the company’s PHI scheme at 75% of full salary. Although she returned to work, her condition worsened during 2011, her absence recommenced and she was finally dismissed as redundant having not returned to work, in August 2012.

The Respondent contended that there had been a variation of contract when the Claimant was first placed under the PHI scheme in 2003 to the effect that her previous salary was substituted by 75% payable under the PHI scheme, as a result of which all her termination payments i.e. untaken holiday, payments under a contractual redundancy scheme, and a payment under a loyalty incentive scheme, should all be paid at the reduced rate. The Claimant pursued claims of breach of contract, an lawful deduction from wages, and discrimination.

Although the Tribunal noted the decision, in Souter v Royal College of Nursing, that an employee on PHI has their contract permanently varied, the Tribunal did not consider this case amounted to an authority (it was a first instance decision). The situation here was that the Claimant’s full-time position had been left open for her to return to as soon as she was able, in which case she would have returned to a full-time salary. Consequently it held that there was no contractual variation in respect of redundancy, holiday and loyalty incentive payments and that these should be calculated by reference to her notional full-time earnings. This was not considered to be the case during the notice period, however, because the Claimant had not worked her notice and therefore this was calculated at the PHI rate. The Tribunal accepted the disability discrimination claim on the basis that, had the Claimant not been ill through a disability she would have continued to receive full-time earnings and all termination payments, including notice pay made when she was redundant, would have been paid at the full rate. The Respondent was unable to put forward an acceptable argument to demonstrate that its action in using the reduced salary as calculation was a proportionate means of achieving a legitimate aim: whilst it considered that the aims might be legitimate (the need to apply policies fairly and consistently and to enable it to continue to provide PHI benefits and to avoid extra costs) the Tribunal did not consider that the means adopted were proportionate. The Claimant was awarded £4,000 for injury to feelings, the Tribunal acknowledging the increased stress and anxiety caused to the Claimant by the Respondent’s actions, but considered that the effect was mild and short term. A costs order was also made against the Respondent although the amount is not indicated.

This legal update is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.

For further details on any of the issues covered in this update please contact Gemma Ospedale, Partner in Employment on 020 7583 2222.

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