Appeal No.	 EAT/898/98
EAT/942/98

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On  1 November 2000
Judgment delivered on 2 February 2001

Before
THE HONOURABLE MR JUSTICE CHARLES
MISS C HOLROYD
MR S M SPRINGER MBE

EAT/898/98
ANITE SYSTEMS LTD	APPELLANT	
-V-
MR A WILLIAMS-KEY	RESPONDENT

______________________________________________________________________________
EAT/942/98
MR A WILLIAMS-KEY	APPELLANT	
-V-
ANITE SYSTEMS LTD	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR R VINEY
(of Counsel)
Instructed By:
Farrells
9 Portland Square
Bristol BS2 8ST	
For the Respondent	MS K GALLAFENT
(of Counsel)
Instructed By:
Stevens & Bolton
The Billings
Walnut Tree Close
Guildford
Surrey
GU1 4YD	

MR JUSTICE CHARLES:	

1	In this case we have two appeals before us (one by each party).

Introduction

2	The parties are Mr Williams-Key, the Applicant before the Employment Tribunal who we shall refer to as the Applicant and Anite Systems Ltd, his employer, the Respondent.  The Applicant appeals against part of a decision of an Employment Tribunal sitting at Bristol on 17 June 1998.  The Extended Reasons for that decision were sent to the parties on 29 June 1998.

3	The background facts are shown by paragraphs 2 and 3 and the first sentence of paragraph 4 of those Extended Reasons.  They are in the following terms:

“2.  The facts as we find them are as follows.  The Applicant was employed in 1985 by the Respondents' predecessor.  He entered into a series of written contracts of employment and on 19 September 1995 he signed a contract, at which time he was project services manager.  He continued with the Respondents and was promoted to technical and commercial director, but his successful career with the Respondents was sadly affected in February 1997 when he was struck down with illness which has developed into, or has proved to be, post-viral syndrome (PVS).  Apart from a couple of attempts to get back to work at that time, he has not worked since.  He is currently in a wheelchair and has to get about in an electric vehicle.  The prognosis is uncertain. 
3.  Fortunately, however, his contract of employment gave him the benefit of a permanent health insurance scheme.  At the time of his illness this scheme was with Phoenix Insurance although it had previously been with Aetna.  On 17 September 1997 the Respondents’ commercial and financial director wrote to him, setting out the details of his permanent health insurance benefits.  These were that he would be paid two-thirds of his basic salary less a sum for those statutory benefits which he would obtain, or was expected to obtain, and less tax and national insurance.  In addition the Respondents would pay their part of the contributions to the pension scheme to which he belonged, which was a money-purchase scheme.  Under that scheme, the Respondents paid a percentage of his salary into the pension scheme and he also paid a percentage of salary into his pension scheme.
4. From that time onwards, he has maintained that he is entitled not only to have the employers’ pension contribution paid into the pension scheme, but that the employers are also obliged to pay his contribution into the pension scheme. …”

4	As appears from the first sentence of paragraph 4 of those Extended Reasons the Applicant maintains that the Respondents are obliged to pay his (ie the employee’s contributions into the company’s pension scheme).  It is this claim which was dismissed by the Employment Tribunal that is the subject matter of the Applicant’s appeal.  This appeal therefore relates to a substantive dispute between the parties and raises points of construction:

(a)	of the Applicant’s contract of employment, and

(b)	section 27 of the Employment Rights Act if the Applicant succeeds on his primary argument that his contract of employment obliges the Respondent company to pay his pension contributions.

5	At the final hearing before the Employment Tribunal held on 17 June 1998 the Applicant represented himself and the Respondent was not represented because its Notice of Appearance had been struck out at the hearing on 13 May 1998, the Extended Reasons for which were sent to the parties on 20 May 1998.  

6	The Respondent appeals against that decision (the strike-out decision).

7	The basis for the strike-out decision was a finding by the Chairman sitting alone that the Respondent had failed to comply with orders for discovery.  

8	Notwithstanding the strike-out decision and the consequent non-appearance of the Respondent at the full hearing, this Tribunal has at an interlocutory hearing directed that the Respondent should play a full part on this appeal and this is what has happened.

9	The skeleton argument put in by Counsel for both sides in respect of the Applicant’s appeal against the substantive decision of the Employment Tribunal identify and rely on the same documents.  Those skeleton arguments contain no assertion that there are any other documents that are relevant to the issue of construction that arises and which was before the Employment Tribunal.  

10	Accordingly at the beginning of the hearing before us, we asked both Counsel whether either side was asserting that there were more documents which were, or might be, relevant to the issue of construction that was before us on the Applicant’s appeal.  We adjourned for a short time to allow Counsel to consider the matter.  The position of both sides was that neither of them was asserting that there were any additional documents that were relevant to the issue of construction.  The Applicant’s position was that he wished to proceed with his appeal on the basis that, having regard to the documents before the Employment Tribunal, they misconstrued his contract of employment and therefore erred in law and that this Tribunal should construe that contract itself rather than remitting that issue to an Employment Tribunal if we accepted the Applicant’s arguments.  The only issue that the Applicant was inviting us to remit was quantification should he succeed on his appeal.

11	The position of the Respondent was that it was also inviting us to construe the contract of employment on the documents that were before the Employment Tribunal and the only possible live issue on the appeal against the strike-out decision given its full participation on the Applicant’s appeal was the issue of costs. Counsel indicated that such argument as to costs would be based on correspondence that had passed between the parties.  

12	At an interlocutory hearing the President of this Tribunal had indicated that he thought that the appeal against the strike-out decision may be moot.  It seems to us that, given that neither side now say that there should have been further documents before the Tribunal that decides the issue of construction of the contract of employment, the appeal against the strike-out decision is indeed now moot.  This is because even though arguments may remain that further discovery should have been provided, the stance taken by both parties is that it would not have produced documents, or information, that it is necessary or appropriate to put before the Tribunal that decides the issue of construction and both sides are now inviting us to decide that issue ourselves, rather than remit it to an Employment Tribunal on the basis that further documents, or evidence, should be before the relevant decision-maker.

13	Accordingly we did not hear argument on the merits of the appeal against the strike-out decision.  Also in the events that happened the Respondent (in our judgment correctly) did not pursue any argument for costs in respect of that appeal.

The construction issue

14	It was common ground that the most relevant terms of the documents were referred to by the Employment Tribunal in their Extended Reasons.  We will however set out those provisions (and some others) in this judgment.

15	The document entitled “Contract of Employment” is a standard form document issued by the employer.  On its opening page it provides as follows:

“The attached Terms and Conditions of Employment incorporate and constitute the Statement of Particulars of Employment to which you are entitled by statute, and together with the Employee Security Agreement you have signed, any Supplementary Statements listed below, and the Cray Systems Employees’ Handbook, form your total Contract of Employment with Cray Systems.”

Paragraphs 10, 12 and 21 of that document provide as follows:

“10  Absences through Sickness or Injury, and Sick Pay
Your entitlement to sick pay is subject to compliance with the Company’s rules for reporting absence and for observing the other requirements of its sick pay and absence scheme set out below or in the Employees’ Handbook.  You will be paid your normal salary for the first six (6) months of accumulated absence through sickness or injury in any two (2) calendar years provided your sickness is accepted by your Divisional Managing Director as genuine.  Any entitlement you have to Statutory Sick Pay and/or other statutory allowances during absence will be taken into account and, subject to deductions for PAYE and National Insurance if applicable, any statutory sums due to you will be paid in accordance with the provisions of the Social Security and Housing Benefits Act 1982 provided that you:
(a)	Report or have someone else report such sickness or injury on the first working day of absence;
(b)	Produce a self-signed certificate for periods of less than one working week or shift cycle of absence through sickness or injury;
(c)	Produce a Doctor’s Certificate for longer periods of absence through sickness or injury;
(d)	Reasonably satisfy your Divisional Director if so required that your sickness or injury is genuine;
(e)	Allow Cray Systems to obtain an independent medical report on your condition from a doctor or specialist of the Company’s choice if so required.”

12  Permanent Health Insurance
Subject to your being accepted as a suitable risk by the insurance company for the scheme, you will be provided (at no cost to you) with permanent health insurance from the first day of your employment.  The scheme provides for a maximum of two thirds (2/3) of salary starting from six (6) months after an employee becomes unable to work.
Cray Systems reserves the right to pass on the cost of any loading in premium to you, or to withhold this benefit if you are not willing to bear such cost.  It is a necessary part of this policy that you must prove each month, until you stop claiming the permanent health insurance benefit, that you are still unable to work.  You should note that this insurance scheme does not cover the Acquired Immune Deficiency Syndrome (AIDS) and some other types of illnesses may also be excluded.
Further information is contained in the Employees’ Handbook.

21  Employees’ Handbook
When you commence employment with Cray Systems you will be given an Employees’ Handbook containing information and conditions about a variety of Cray Systems’ policies, benefits and quality standards.  You will be issued with updates to the Employees’ Handbook from time to time during your employment.  The employee obligations contained in the Employees’ Handbook constitute a part of your terms and conditions of employment.  [Then in manuscript] In the event of conflict these Terms and Conditions take precedence over the Employees’ Handbook.”
The last sentence of paragraph 21 (cited in italics) is in manuscript and is initialled by the Applicant and on behalf of the employer.

16	The Employees’ Handbook provides as follows:

“The information provided in this Handbook forms part of the terms and conditions under which you are engaged with this company and as such forms part of your Contract of Employment.
If you have any queries on any aspect of this Handbook you should raise them immediately with your line manager or a Director of the Company.
This document will be updated from time to time and reasonable notice of the changes will be given to all employees.”

17	Section 2 of the Employees’ Handbook under the main heading “Payments and Benefits” contains the following provisions under the sub-heading “Payment during absence due to sickness or injury”:

“Payment during absence due to sickness or injury 
Company Sick Pay
If you are absent from work due to illness, full basic pay will normally be paid by the Company for twenty-six weeks (other than an employee serving a probationary period).  If you are unable to return to work after this period you will receive compensation from our Permanent Health Insurance scheme, subject to the conditions of that scheme.  The basis of benefit under this scheme can be summarised as follows:
2/3rd  basic salary
less 
single person’s state invalidity benefit
plus 
pension contribution benefit from employer and employee where appropriate.
Two thirds pay is calculated as two thirds of your basic rate of salary effective on the day prior to the periods of disability, normal deductions having been made, eg tax, pension (where appropriate) etc, as if you were still at work.
In any event the company will cease to pay basic full pay after twenty-six weeks’ accumulated absence in any 2 years, but will pay Statutory Sick Pay if appropriate.  The Company also reserves the right to end some or all of your employment benefits, including car, pension contributions and holiday entitlement, after 26 weeks’ accumulated absence in any 2 years.  These benefits will be reinstated in full when you return to full time work.

Statutory Sick Pay
Under the current legislation, the Company acts as an agent for the Department of Social Security and is responsible for paying Statutory Sick Pay (SSP) to employees for up to 28 weeks of absence through sickness or injury.  Since the Company Sick Pay Scheme enables the Company to pay full pay for most sickness, few employees will receive payments under the Statutory Scheme which is less generous.”

18	In paragraph 7 of the Extended Reasons the Employment Tribunal record and find that the insurance scheme that was in existence at the time the contract of employment was entered into (the AETNA scheme) provided that the benefits payable included “7% employers’ pension scheme contributions” and did not include any provision for the employee’s contributions.  We were shown the relevant page of that policy and, as one would expect, this is what it provides.

19	As the Employment Tribunal also point out in paragraph 7 of the Extended Reasons, by the time of the Applicant’s sickness there was a different policy which they describe as the Phoenix Scheme.  A copy of that policy was included in our bundle of papers and shows that Phoenix Assurance Plc was a member of the Royal & Sun Alliance Life & Pensions Marketing Group.  Paragraph 3 of Schedule 1 to that policy under the heading “Benefits” provided as follows:

“3.  Benefits
The annual rate of Scheme Benefit in respect of a Member at any time shall be the total of the Member’s Basic Benefit and his Supplementary Benefit, as follows:
Basic Benefit means an amount equal to
(i)	two-thirds of his Scheme Salary less
(ii)	the State Scheme Deduction
Provided that in no event shall the Basic Benefit in respect of a Member exceed 
(a)	in the case of a Member whose Scheme Salary does not exceed £164,000 (or such higher amount as may for the time being be allowed by the Company). £120,000
(b)	in the case of a Member whose Scheme Salary exceeds £164,000 (or such higher amount as may for the time being be allowed by the Company) but does not exceed £316,000, one-quarter of the Member’s Scheme Salary plus £79,000.
(c)	in the case of a Member whose Scheme Salary exceeds £316,000, the lesser of 
(i)	one-half of the Member’s Scheme Salary
and
(ii)	£250,000
(d)	in all cases such other maximum amount as may be applicable at the time in accordance with the Company’s then current standard terms and conditions and which has been notified to the Grantees in writing.
Supplementary Benefit means an amount equal to the National Insurance Contributions and Pension Scheme Contributions in respect of the Member.
The annual rate of Benefit Insured in respect of a Member at any time shall be his Scheme Benefit at that time or the amount for which he has been accepted for inclusion in the Policy in accordance with General Provision No. 4, if less.
In the event of the Benefit Insured in respect of a Member having become payable under the Policy in accordance with section 1 of Schedule 3 it shall be increased in amount by 3 per cent compound on each anniversary of commencement of its payment for so long as the Member’s Disablement continues.”

20	The definition provision of that policy is also contained in Schedule 1 and provides that:

“ ‘Grantees’ means Anite Systems Limited (formerly known as Cray Systems Limited) whose registered office is situated at 5 Genesis Business Park, Albert Drive, Working, Surrey GU21 5RW.
‘Pension Scheme Contributions’ means in respect of a Member at any time the amount applicable in respect of him under the Policy at that time (if any) in respect of contributions to the Employer’s pension arrangements which amount shall be in accordance with terms from time to time agreed between the Company and the Grantees.  Provided that during any period in respect of which a benefit is payable in respect of the Member under the Policy, Pension Scheme Contributions shall be the amount applicable immediately before the Member’s last or only Disablement.”

21	As I have already mentioned it was common ground before us that the company’s pension scheme was a money purchase scheme.  In Paragraph 4 of the Extended Reasons the Employment Tribunal say:

“His contribution is 5% of his gross basic salary, and he claims on the basis that it should be 5% of his full salary and not 5% of his benefit.”

Before us the Applicant’s position was that throughout his employment he had made regular employee contributions of 5% and therefore that was the position at the time he entered into the contract of employment, and when payments began to be made, pursuant to the PHI scheme.  The Applicant did not assert that these were minimum requirements of the pension scheme or that he had a binding obligation to maintain that level of contribution.  His position was that under the Pension Scheme he had a discretion to increase his level of contributions.

The arguments as to construction

22	As the arguments demonstrate in our view the Respondent company would be well advised to revisit the drafting of its standard terms and Employees’ Handbook.  Although we have decided against the Applicant we have some sympathy for him and can understand why he reached the conclusion that he should be paid his employee’s contributions. 

23	During the course of the hearing three possibilities were identified:

(1)	The Applicant’s primary argument was that on a true construction of the contract of employment the Respondent was under an obligation to make the payments referred to in the Employees’ Handbook and thus to make payments to the Applicant of “two thirds basic salary, less single person’s State Invalidity Benefit plus pension contribution benefit from employer and employee where appropriate”.  The argument continued that the obligation to pay pension contribution benefit from employer and employee “where appropriate” included an obligation to pay the regular employee’s contributions that the Applicant was paying immediately prior to the start of his disability.  That was 5% of his salary of £55,000 per annum.

(2)	The Respondent’s primary argument was that the Employment Tribunal reached the correct conclusion as to the true construction of the contract of employment and therefore that the Respondent was simply a “post box” for the sums payable under the PHI scheme entered into by the Respondent company.  It was a part of this argument advanced on behalf of the Respondent that its only obligation in respect of the PHI scheme it entered into was that that scheme was to provide for “a maximum of two thirds of salary, starting from six months after an employee became unable to work” as provided for in paragraph 12 of the standard term Contract of Employment.

(3)	A further argument was identified during the course of the hearing and that was that the Respondent owed a contractual obligation to the Applicant to enter into and maintain PHI insurance which provided benefits referred to in the Employees’ Handbook.

The jurisdiction argument

24	The Applicant accepted that for the Employment Tribunal to have jurisdiction to hear his claim he had to establish that the disputed sums, namely the employee’s contributions were wages within the meaning of section 27 of the Employment Rights Act.  

25	During the course of argument Counsel for the Applicant (in our judgment correctly) accepted that if he failed to establish his primary contention as to the construction of the contract he was not in a position to maintain an argument that the disputed sums were wages within the meaning of section 27 of the Employment Rights Act.

26	Accordingly to succeed on this appeal the Applicant has to demonstrate that the Respondent has a contractual obligation to make the disputed payments itself and that its obligations are not to enter into a PHI scheme and pass on the sums payable under it.  If he fails to establish this he cannot then establish that the Employment Tribunal (and therefore this Tribunal on appeal from it) has jurisdiction to determine the issues that are in dispute.  However, as we heard full argument on the construction of the contract we shall express our views on it.

The Applicant’s primary argument

27	As to this we agree with the Employment Tribunal when they say at paragraph 13 of their Extended Reasons that:

“It is plain to us that the main contract gives an employee a right to payments from a scheme and not to any such payments.”

In our judgment this follows from a reading of paragraph 12 of the standard terms and the provision in the Employees’ Handbook relating to “Company Sick Pay”.

28	In our judgment it is clear from paragraph 12 and the first sentence of the provision in the Employees’ Handbook relating to “Company Sick Pay” that the scheme being referred to is an insurance scheme with a third party insurer and the Applicant’s argument that the reference to “our Permanent Health Insurance scheme” in the Employees’ Handbook was, or could include, a reference to an internal scheme is wrong.  

29	In our judgment this reference to “our Permanent Health Insurance scheme” relates back to the scheme referred to in paragraph 12 of the standard terms.  The first sentence thereof refers to a scheme with an insurance company and to the provision of permanent health insurance.  Also the second sub-paragraph thereof refers to (i) “passing on” the loading of premium and thus to a third party insurance, and (ii) in the last sentence thereof there is a further reference to an insurance scheme.  In our judgment these parts of paragraph 12 make it clear that what is to be provided is insurance with a third party insurance company.

30	Further, in our judgment this conclusion is supported by a comparison of paragraphs 10 and 12 of the standard conditions.

31	It follows from this conclusion that:
(a)	we do not accept the Applicant’s argument that the following phrases in respectively paragraph 12 of the standard terms and the Employee’s Handbook relating to “Company Sick Pay”, namely “you will be provided” and “you will receive” impose an obligation on the Respondent to make the payments itself, and
(b)	we accept the argument of the Respondent company that its obligation under the Contract of Employment is to enter into a permanent health insurance scheme and to pass on benefits received under that scheme to the employee.

32	As we have said, those conclusions dispose of this appeal and mean that it must be dismissed.

The Respondent’s primary argument

33	As appears above we accept the first limb of this argument namely that the Respondent is simply a “post box” for the sums payable under the PHI scheme entered into by the Respondent company pursuant to its contractual obligation to do so.  

34	However we do not agree with the second limb of that argument, namely that the extent of that obligation is governed only by the terms of paragraph 12 of the standard terms and, in particular, the implication therein that the Respondent company could at its discretion provide PHI cover for less than that provided by the scheme in force at the time that the relevant contract of employment is entered into on the basis that the new scheme provided for a “maximum of two thirds of salary”.  In our judgment that phrase is too vague to be isolated as the only part of the contractual documents that identifies the extent of the contractual obligation of the Respondent company in respect of the PHI scheme it is to enter into.  We consider that this conclusion is supported by the last sub-paragraph of paragraph 12 of the standard terms which states that: “Further information is contained in the Employees’ Handbook”, and in our judgment, on the true construction of paragraph 12, that information includes further information as to the terms of the scheme referred to in paragraph 12.

The further argument

35	Having rejected the primary arguments of both sides it follows that in our judgment the further argument identified during the hearing is correct.  

36	This involves reading and construing the standard terms and the Employees’ Handbook together. In advancing its primary argument the Respondent company accepted that this had to be done but asserted that the Employees’ Handbook added nothing.  We do not agree.  The relevant provision in the Employees’ Handbook under the heading “Company Sick Pay” (quoted in paragraph 17 above) is in two parts.  First it refers to the employee receiving compensation from “our Permanent Health Insurance scheme”. Second it summarises (or purports to summarise) that scheme.

37	In our judgment by those two parts read together the Employees’ Handbook is referring to an existing scheme and it is common ground that there was an existing scheme at the time that the contract of employment was entered into.  It would not be possible to summarise a non-existent (or unidentified) scheme. 

38	We agree with the submission made on behalf of the Respondent company that if there was a conflict between the summary (or purported summary) and the scheme then the terms of the scheme should prevail.  However in our judgment this means that it is the terms of the scheme in existence at the time that the contract of employment was entered into that identifies the minimum benefits of the PHI insurance that the Respondent company is contractually bound to maintain.  We say the “minimum benefits” because the documents are silent as to a change of insurance scheme by the Respondent company and in our judgment the effect of this is not that the Respondent company is precluded from changing insurers (e.g. if the existing insurer would not renew or for any other reason) but that it is contractually bound to keep up PHI insurance that provides such minimum benefits and which imposes no additional burdens on the employee.  We add that in our judgment:
(a)	the reservation in the third sub-paragraph of the relevant provision in the Employees’ Handbook under the heading “Company Sick Pay” does not enable the Respondent company to reduce the benefits under the PHI insurance cover, and
(b)	if there is a change of insurance scheme which gives added benefits and is triggered by a relevant inability to return to work the Respondent company is bound to “pass on” those benefits.

39	We have therefore reached the same conclusion as the Employment Tribunal (see in particular paragraphs 13 to 15 and 17 of the Extended Reasons) albeit that there are differences in our reasoning.

40	 It was common ground that the benefits being paid (or payable) under the Phoenix Scheme did not include payment of employee’s pension contributions; indeed if they were being paid (or it was thought that they should be) the dispute between the parties would (or probably would) not have arisen.  In our judgment that common ground accords with the terms of the Phoenix policy.  It was also the case that the benefits under the AETNA scheme did not include employee’s contributions.

41	In our judgment the Applicant’s contention that the summary (or purported summary) in the second part of the relevant provision in the Employees’ Handbook under the heading “Company Sick Pay” is at odds with the terms of those schemes is wrong. That contention is based on the argument that “where appropriate” means when the employee had been making regular contributions immediately prior to the start of his disability.  We do not agree.  In our judgment, in its context that phrase refers to what is included in the insurance scheme.

42	It follows in our judgment that there is no conflict between the summary and the terms of the two insurance schemes in respect of employee’s contributions.  If we are wrong on this point we add:
(a)	as mentioned earlier in our judgment the summary (or purported summary) would not prevail over the first part of the relevant provision in the Employees’ Handbook under the heading “Company Sick Pay”, and
(b)	in our judgment the argument advanced by the Applicant that the manuscript addition to paragraph 21 of the standard terms applies only to the obligations of the employee is wrong and the effect of that addition is that in the event of any conflict between the standard terms and the Employees’ Handbook the former are to prevail.
It follows from point (b) that if we are wrong and the Applicant’s argument that the purported summary provides that employee’s contributions are payable that would be in conflict with paragraph 12 of the standard terms read alone (and together with the first part of the relevant provision in the Employees’ Handbook under the heading “Company Sick Pay”) and would therefore not prevail.

Overall conclusion

43	For the reasons we have given:
(a)	the Applicant’s appeal is dismissed, and
(b)	the Respondent’s appeal against the strike out decision is also dismissed.