Carol McMahon v AXA ICAS Ltd

The Employment Appeal Tribunal considered three linked appeals arising from the appellant's dismissal and a permanent health insurance (PHI) scheme operated by the respondent. The tribunal below was upheld in its conclusion that the respondent's contractual obligation under the PHI scheme was to pay benefits which, during employment, constituted "wages" for the purposes of section 13 of the Employment Rights Act 1996, and the cross-appeal alleging the obligation was only to maintain an insurance policy was refused. The tribunal's construction that "normal earnings" and "scheme salary" meant basic salary (excluding overtime and hypothetical future pay increases) was affirmed, but the EAT held the tribunal had erred in its reasoning about the application of the contractual 5% annual uplift: the uplift is to be applied to the amount being paid at each anniversary, not frozen to the first-year figure. The EAT remitted quantification to the tribunal. An interlocutory refusal to permit amendment to pursue post-termination PHI payments was upheld where such a claim had little prospect of success and would unduly extend the hearing. Separately, the EAT allowed the appeal against strike-out of the disability discrimination claim: the tribunal should have permitted the claimant to refine and focus that claim and then assessed, on evidence, whether a fair hearing remained possible before striking it out.

Background and procedural posture.

• The appellant was employed from 24 January 2000 until dismissal on 12 September 2013. She claimed disability discrimination and unlawful deductions from wages arising from a PHI scheme said to pay 75% of "normal earnings" during long-term incapacity. Proceedings produced three contested rulings in the employment tribunal: (i) a strike-out of the disability discrimination claim (31 March 2022); (ii) refusal to permit an amendment to pursue PHI-related wage deductions after termination (12 April 2022); and (iii) a substantive judgment on unpaid wages for the period May 2011 to 25 June 2013 under section 13 ERA (29 July 2022). All three rulings were appealed to the Employment Appeal Tribunal.

Nature of the claims and relief sought.

• The claimant sought: (a) a finding of disability discrimination; (b) an unlawful deductions claim under section 13 ERA for unpaid PHI benefits during employment (May 2011 to 25 June 2013); and (c) permission to amend the ET1 to pursue ongoing PHI payments after termination on the basis that dismissal breached an implied Aspden term so as to "negate" the effects of dismissal.

Issues framed by the court.

1. Whether the appellant's contract created an employer obligation to pay PHI benefits (capable of giving rise to a section 13 unlawful deductions claim) or merely an obligation to procure and maintain an insurance policy.
2. How the PHI benefit should be quantified: whether "normal earnings" included overtime and hypothetical future pay rises, and how the contractual 5% annual uplift applied (fixed on first-year benefit or applied to the amount being paid each anniversary).
3. Whether the tribunal erred in refusing permission to amend to pursue post-termination PHI payments and whether such a section 13 claim could relate to sums after termination.
4. Whether the tribunal properly struck out the disability discrimination claim without first permitting focused specification and an evidence-based assessment of whether a fair hearing remained possible.

Court's reasoning and conclusions.

• The EAT held the contract comprised the offer letter, the staff handbook and the HR document provided on request; the documents did not make entitlements conditional on insurer acceptance. The contractual obligation was to provide payments under the PHI scheme, not merely to maintain insurance, so the cross-appeal failed and the section 13 claim in respect of the employment period was competent.
• "Normal earnings" and "scheme salary" were to be interpreted as basic contractual salary; overtime and hypothetical post-crystallisation salary increases were excluded because they gave rise to unacceptable uncertainty. The 5% annual uplift, however, should be applied to the amount being paid at the end of each year (i.e. annually compounded on the amount paid), not frozen to the first year's payment; this was an error in the tribunal's reasons but did not alter the outcome on liability and can be addressed at the remedy/quantification stage.
• The tribunal was entitled to refuse the application to amend to pursue post-termination PHI payments because such a claim lacked real prospects and would materially expand the hearing; the EAT refused the second appeal.
• On the strike-out, the EAT allowed the first appeal: the tribunal should first have allowed the claimant to focus the disability claim (as had been agreed at an earlier case management hearing) and then made an evidence-based assessment of whether a fair hearing remained possible; striking out without that process was erroneous. The strike-out order was quashed and the issue remitted to the tribunal for redetermination.

Remedies and disposition. The cross-appeal and the second and third appeals were refused; the disability strike-out was set aside and remitted for fresh determination. Quantification of PHI payments was remitted to the tribunal taking account of the correct annual uplift rule.

The appeal was allowed in part. The Employment Appeal Tribunal (1) refused the cross-appeal that the employer's contractual duty was only to maintain insurance and confirmed the tribunal's finding that the PHI scheme created an employer obligation to make payments constituting "wages" during employment; (2) upheld the tribunal's construction that "normal earnings" and "scheme salary" meant basic salary (excluding overtime and notional future pay increases), but corrected the tribunal's reasoning on the 5% annual uplift: the uplift applies to the amount being paid at each anniversary; quantification is remitted; (3) refused to allow the proposed amendment to pursue post-termination PHI payments as having little prospect of success and unduly enlarging the hearing; and (4) allowed the appeal against strike-out of the disability discrimination claim because the tribunal should have permitted focused specification and an evidence-based assessment of whether a fair hearing remained possible, and remitted that strike-out application for redetermination.

Appeal to the Employment Appeal Tribunal from Employment Tribunal decisions: strike-out of disability discrimination claim (Employment Tribunal judgment dated 31 March 2022), refusal to permit amendment (interlocutory order dated 12 April 2022), and substantive judgment on unpaid wages under section 13 ERA (29 July 2022). The EAT handed down judgment [2025] EAT 8 on 22 January 2025.