The benefit of clear drafting: Reciprocal Agreements and breach of contract

A recent Employment Appeal Tribunal (EAT) case decided that an employer could not rely on an agreement it had with a third-party provider of an employee benefit to withdraw that benefit.  This has implications for employers who provide employees with access to benefits in this way, such as insurance benefits like medical insurance and long-term disability benefit.

In this article we consider the case and what employers can do to retain flexibility to change or withdraw such benefits.

Adekoya & Ors v Heathrow Express Operating Company Ltd (Heathrow)

The claimants had worked for Heathrow for over five years.  During their employment the claimants were entitled to discounted UK rail travel. This benefit was provided to Heathrow by virtue of its membership of the Association of Train Operating Companies (ATOC) (now known as the Rail Delivery Group).

The benefit was not referred to in the claimants’ employment contracts.  On joining they were given a document which set out ATOC’s terms on which the benefit was provided, including that employees made redundant with over five years’ service could retain the benefit after termination (the ATOC Agreement).

The discounted travel scheme was operated by Rail Staff Travel Ltd (RST).  There was a ‘Reciprocal Agreement’ between RST and Heathrow, which provided that the benefit could be curtailed or withdrawn.

In May 2019, ATOC gave Heathrow notice that for employees employed after 1996, the benefit would no longer be available after termination. This notice affected the claimants, but the withdrawal was not notified to them.

In 2020 the claimants took voluntary redundancy. They were told that they would not be entitled to discounted rail travel after termination.  The claimants brought claims for breach of contract, arguing that they had a contractual right to the benefit after termination.

The employment tribunal determined that the ATOC Agreement had been incorporated into the claimants’ employment contracts, as had the Reciprocal Agreement, including the withdrawal provisions.  Such that from May 2019 the claimants would no longer be entitled to the benefit after termination.

The claimants appealed and the EAT overturned the tribunal’s decision. It held that the withdrawal provisions of the Reciprocal Agreement were not incorporated into the claimants’ contracts.

It was not referred to in their employment contracts and the claimants were not aware of its existence.  Also, said the EAT, mere awareness of the fact that a benefit was provided by a third party did not mean that the provider’s agreement with the employer was incorporated into their contracts.

Therefore, there was no way that the terms could have been considered to be incorporated into their contracts or the agreement relied upon, for Heathrow to remove their entitlement to the benefit. The EAT found Heathrow to be in breach of contract.

Key considerations for employers

This decision demonstrates that employees are not automatically bound by what the employer has agreed with a third-party benefit provider.

Employers should ensure clear contractual wording is included in employment contracts regarding the limitation of any liability to provide employment benefits supplied by third parties and in particular, the amendment and/or withdrawal of any benefits during employment and on termination.

Employers should also:

• Consider the wording of any agreements entered into with third party providers and assess how any benefits may be withdrawn by either party
• Communicate any changes to or withdrawals of employee benefits, to employees in writing and as soon as the employer is notified. If necessary, contracts of employment should be reviewed to ensure there are no contradictions as to the scope or duration of benefits entitlement
• Review benefits periodically so that any changes can be made to the contractual terms, to reduce the risk of future claims for breach of contract.

If you have any questions or would like to discuss anything in this article, please speak to a member of our Employment team.