Employers and benefits provided by a third party

Posted: 20/06/2024

Are employers required to continue to provide benefits to their employees when those benefits are no longer offered by the third-party provider? That question was considered in the recent case of Adekoya and ors v Heathrow Express Operating Company Ltd. 

In this case, the Employment Appeal Tribunal (EAT) overturned an employment tribunal’s judgment that redundant employees were not entitled to a life-long discount on rail travel, notwithstanding the fact that the third-party provider had withdrawn the benefit.

Heathrow Express Operating Company Ltd (HEOC Ltd) offered its employees a 75% discount on select rail services via its membership of the Rail Delivery Group (RDG – formerly known as the Association of Train Operating Companies (ATOC)). The benefit was provided by a third party, RST Ltd, which is also a member of the RDG. 

On joining HEOC Ltd, employees received a document setting out the ‘ATOC terms and conditions’ applicable to their employment. Under those terms, staff with five or more years of service who left HEOC Ltd due to redundancy could retain their ‘privilege travel facilities’, including discounted rail travel, after their dismissal. It was clear from the documentation that this benefit was provided by RST Ltd, and not by their employer.

In May 2019, RDG notified HEOC Ltd that the privilege travel benefit would cease for employees who were made redundant and who had been hired after 1996. 

Subsequently, a number of employees (each having been hired after 1996 and having over five years’ service) were made redundant and were denied the privilege travel benefits. Those employees brought claims against HEOC Ltd for breach of contract, asserting a right to a lifelong discount on rail travel.

The employment tribunal ruled that, although the ATOC terms and conditions (which included the right to retain travel benefits post-termination) had been incorporated into the employees’ contracts, the ‘reciprocal agreement’ between HEOC Ltd and RST Ltd allowing the benefit to be withdrawn was also incorporated. Consequently, the notice of withdrawal given to HEOC Ltd in May 2019 had the effect that the employees were no longer entitled to the privilege travel benefit after their dismissal. 

However, the EAT overturned this decision. It held that, unlike the ATOC terms and conditions, the reciprocal agreement had not been incorporated into the employees’ contracts. Notably, the reciprocal agreement was not explicitly referenced in the ATOC terms and conditions, and the employees had never received a copy of it and were unaware of its existence. The EAT emphasised that mere awareness of the fact that a benefit was provided by a third party did not necessarily imply contractual incorporation.

Accordingly, the EAT has remitted the case back to the tribunal to address other issues in the case, including whether the claimants’ rights were compromised by settlement agreements they had entered into.

Employers who continue to provide contractual benefits post-termination should be aware that they can continue to be payable notwithstanding termination of the agreement between the employer and the third-party provider. Employers should ensure that the continuation of any such benefits set out or otherwise incorporated into a contract of employment should be expressly subject to the terms of any agreement between the employer and the third-party provider. 

Failure to do so will leave employers open to the risk of claims for breach of contract. It is for this reason also that any benefits that are provided subject to a third-party scheme (eg health or life insurance) should always be made expressly subject to the terms of those schemes/policies.

Return to news headlines