Pioneer Technology (UK) Ltd. v Jowitt

1. LORD JUSTICE SEDLEY: Mr Michael Jowitt, a skilled electronics technician now aged 54, was employed by the appellants from 1995. He had reached "permanent" status with them when in October 1996 he suffered a cervical disc lesion which precipitated previously symptom-free spondylitis. In spite of surgery, it has by common consent left him permanently unable to continue in his job and he remained, at the time of these proceedings, incapacitated. We do not know what the present situation is. The question which arises in this appeal is whether the provision in his contract of employment for a scheme to provide an income to long-term disabled employees "for as long as they are unable to work" applies to him.

2. The appellants, on the evidence we have, were a considerate employer. Written terms and conditions on which the respondent was employed included health insurance cover in addition to the normal sick pay provisions. The terms also explicitly incorporated the company handbook which provided:

"5.3 Long Term Disability

The Company runs a scheme that is designed to provide an income during lengthy periods of absence due to prolonged sickness or injury. Permanent and Established members of staff are entitled to two thirds of normal pay (inclusive of State benefits) after 26 weeks continuous absence through illness or disability, for as long as they are unable to work up to date of retirement, as certified by a medical practitioner and, if necessary, confirmed by the Company's doctor."

3. The appellants had, as is usual, covered their contingent liabilities under this clause by insurance. They had a policy with Swiss Life (UK) Ltd Plc under which cover terminated after two years' incapacity in the employee's pre-accident job and continued only if Swiss Life were "satisfied of his total inability to follow any occupation".

4. The employers' own medical adviser, Dr Pinder, kept Mr Jowitt under review. About nine months after the accident she reported that Mr Jowitt was improving but "not yet fit to do any type of work". In March 1998 she reported "Not fit for his own job and never will be for the foreseeable future." Some two years after the accident she reported that the condition seemed to have deteriorated and concluded "He is neither safe nor fit for any work on site at this time".

5. Swiss Life, however, obtained at about the same time the report of an orthopaedic surgeon, Mr Shaw, which concluded:

"He now has significant and continuing disabling symptoms .... I would not expect there to be any further improvement in symptoms.

With regards to the level of disability, Mr Jowitt is certainly not disabled from any [ie every] kind of employment activity. He would be unable however to undertake any employment which involved driving for more than short distances and any form of heavy lifting. He would also be unable to undertake employment which involved prolonged fine manipulative skills. This would include prolonged use of a computer keyboard, but would not exclude employment which involved short duration keyboard activities. In general therefore he should be able to undertake employment which did not involve any of the above activities."

6. What employment this envisaged in the real world for a technician now past 50 was not explored, not least because Mr Jowitt had no contractual relationship with Swiss Life. The appellants' occupational health nurse adviser, however, wrote to their consultant neurosurgeon, Mr Towns (whose report Mr Shaw had seen, but we have not):

".... you are of the opinion that he should not return to his previous occupation, and point out that, while you feel sure he is capable of some sort of employment, you would be amazed if anyone would employ him."

7. The appellants accordingly stood loyally by the respondent and wrote to the insurers:

".... it is the opinion of our Occupational Medical Advisor and of Mike's own specialist that he remains unfit to perform any occupation at present."

But Swiss Life refused to continue cover.

8. Mr Jowitt therefore had to issue proceedings against the only party with whom he had a contractual relationship, his employer. His claim was that, contrary to section 13 of the Employment Rights Act 1996, they had made unauthorised deductions from his wages in the amount of the long-term disability income specified in 5.3 of the handbook. Nothing turns on the terms of the Act. It is accepted that if there is an obligation to pay, the shortfall is recoverable under it.

9. The grounds on which Pioneer Technology now contend that there is no duty to pay are first, that clause 5.3 incorporates the insurance policy, so that what the insurers will not cover is excluded; secondly and alternatively, that even if the clause alone governs the entitlement, Mr Jowitt is not "unable to work" as it requires. The Employment Tribunal, sitting at Leeds on 30 January 2001, accepted the first of these arguments. Having done so, it dismissed the claim. The Employment Appeal Tribunal, Judge DM Levy QC presiding, in a judgment given on 18 July 2002, reversed the decision of the Employment Tribunal on the grounds, first, that the handbook obligation was free-standing, and secondly that "unable to work" in the material clause meant unable to continue to do the work the employee was doing at the time when he was injured. The EAT gave the company permission to appeal to this court.

10. Although the Employment Tribunal did not deal with inability to work as a discrete issue, it was submitted to the EAT that the ET had found as a fact that Mr Jowitt was able to work, and the EAT seem to have accepted this. In fact (and I do not think this has been contested before us) the ET had found no such thing. They found only that Swiss Life, given Mr Shaw's report, had been entitled to come to that view.

11. Although this is a pure point of construction, it is necessary to consider it on three alternative bases. One is that "unable to work" means what the EAT held it to mean. The second is that it means unable to do any work whatever. The third is that it means unable to earn a living. If it has the first meaning, the appeal will fail, since by common consent Mr Jowitt cannot do his pre-accident job. If it has the second or third mean meaning, consideration will have to be given for the first time to the degree and extent of Mr Jowitt's continuing incapacity.

The "scheme"

12. The appellants' argument, accepted by the Employment Tribunal, was that clause 5.3 simply obliged them to set up a scheme for long-term disability pay: this they did, and if the respondent fell outwith its terms, that was not a breach of the contract of employment. The EAT rejected this argument, and so would I. Unlike clause 5.6, for example, which explicitly links personal accident insurance to a policy ("The Company insures .... ") and unlike clause 5.1, which refers explicitly to pensions schemes available on request, clause 5.3 represents in simple terms that the appellant itself makes provision ("runs a scheme") for pay during long-term disability or illness, and spells out what the provision is. Of course it was prudent for the employer to cover its potential liability by insurers, but the policy is not referred to in the clause and the respondent knew nothing of its existence, much less its terms: compare Thornton v Shoe Lane Parking [1971] 2 QB 163, 170 per Lord Denning MR. If the policy had been avoided for material non-disclosure, for example, could it seriously be said that the staff's contractual entitlement to long-term disability pay abated?

13. In my judgment there is no foundation for incorporating the policy terms either directly or by reference into this contract of employment. The decision of this court in Briscoe v Lubrizol [2002] IRLR 607, which reached a different result on the facts, seems to me wholly consonant in its principles with this reasoning. In some cases no doubt a clause like this would be uncertain without reference to some other source for details, but here sufficient is spelled out for the parties to be able to quantify the amount payable. Mr Underhill for the appellants says that the clause, in contrast to the policy, does not say whether "normal pay" includes bonus or commission, or whether salary is to be treated as fixed or changing. But plenty of contracts which make similar provision have to be construed against the background of fact and practice in which they came into being, and this one is no exception. Nor, it is pointed out by Mr Underhill, does the clause deal with pension payments. That no doubt is because they are not included. Mr Underhill's ultimate submission, in answer to the Vice-Chancellor's question, that clause 5.3 by itself is unenforceable for uncertainty, is in my view not tenable. There is all the difference between a term which, though imperfect, can be made to work, and one which is simply unworkable. Clause 5.3 seems to me to be plainly in the former class.

"Unable to work"

14. The EAT went on, in the light of their first conclusion, to consider what degree of inability was envisaged by clause 5.3. Asking themselves what the parties must have meant when, against the material background, they used the words set out earlier in this judgment, they concluded that the object was to assure part of the earnings of employees who could no longer do their own job, not simply of those who could no longer work at all. Even allowing, as one must, for the expertise of the EAT's lay membership, their conclusion is one with which I am respectfully unable to agree.

15. First, one recalls that the ordinary consequence of long-term incapacity is to bring the contract of employment to an end by frustration. Clause 5.3 is therefore a provision which keeps the contract in being for the sole purpose of providing an income for the incapacitated employee. It is perfectly true, as the respondent's counsel points out, that if such an employee took a job with an another employer, this residual contract would come to an end, in law because it had been repudiated, in fact because the employee would have demonstrated that the principal condition of payment was no longer being met. But this would not be the case on the EAT's construction if the appellant company provided suitable but different employment. To cope with this, the clause would require further judicial refinement.

16. Mr Stafford QC for the respondent has attempted a different form of refinement in his argument. He has suggested that clauses 5.3 and 5.4 are not discrete but parts of a whole. 5.4 is a clause which deals with the restriction by ill-health or injury of an employee's working capacity and provides in essence for alternative work to be made available, if possible within the organisation. His argument, attractive on the face of it, is that the effect of the two clauses taken together is to provide a system whereby the two-thirds pay provision underwrites the security of an employee who cannot do the job that he has been taken on to do and for whom other work cannot be found within the organisation. On that hypothesis, the phrase "unable to work" can be restricted, as he would argue it should be, to inability to do the pre-accident work. The difficulty with his argument, it seems to me, is that it assumes that which he has to prove; and if one postulates the opposite, namely that the two provisions are not interdependent but discrete, one can equally well so read them. In the end, therefore, I am not persuaded by Mr Stafford's argument to go down his road.

17. Next, however (and by parity of reasoning with the EAT's decision on the first issue), the contract contains different wording where it deals with partial incapacity. Clause 5.4, to which I have just made reference, is captioned "Members Restricted by Ill-Health or Injury" and provides for employees who are unable to pursue their "normal job" but are capable of alternative work within the organisation. There would have been no difficulty in using a similar phrase in clause 5.3 if this had been what was intended. The case in this respect stands in contrast to the decision of this court in Sargent v GRE (UK) Ltd (unreported, 16 April 1997), where the context satisfied the court that "permanent total disablement from attending to any occupation" meant the occupation being followed at the time when disability supervened.

18. In respectful disagreement with the EAT, I would therefore hold that clause 5.3 covers only employees who are medically certified, after 26 weeks' absence because of illness or injury, as still unable to work.

19. But how disabled, and disabled from what, must an employee be for this purpose? In my judgment (and Mr Underhill has accepted this in the course of his submissions) "unable to work" in the present context cannot mean incapacitated from any and every purposeful activity. In my judgment, an employee is "unable to work" for the purposes of clause 5.3 if there is no continuous remunerative full-time work which he can realistically be expected to do: compare Walton v Airtours [2003] IRLR 161. The scheme set out in clause 5.3 in the context of the handbook and the employment relationship is there, in other words, to cushion the earnings of employees who become so disabled that they can neither be found other work within the organisation nor realistically be expected to find employment elsewhere.

What follows?

20. It is one thing for Swiss Life (whether rightly or not we do not have to decide) to have refused cover on the basis of the opinion of an orthopaedic surgeon that Mr Jowitt was "not disabled from any kind of employment activity". It is quite another thing for him to fall outside the terms of clause 5.3. The appellants themselves considered at the time that the terms of clause 5.3 were met in Mr Jowitt's case. As they had recorded, his own doctor and the company's doctor both took the view that he was -- in effect -- unemployable. That is all the clause requires. The company has no independent judgment to form. In truth there was probably no great distance between the view of those doctors and that of Mr Shaw, which was in effect that Mr Jowitt was theoretically employable in a range of negatively identified tasks. But neither Mr Shaw -- as the Employment Tribunal noted -- nor anyone else had identified an actual job which he might now do. It is therefore not entirely easy to go along with Mr Underhill's endeavour before this court to rely on Mr Shaw's report in preference to his own client's medical opinion.

21. But although at an earlier stage the company had, as I have described, taken Mr Jowitt's side against Swiss Life, it would not, I think, be right to treat them as estopped from canvassing the extent of his disability, both then and, if relevant, now, in relation to the test which this appeal has for the first time established. The question is one of pure fact and the right course in my view is to remit it for determination.

22. I would hold, therefore, that while the contract of employment, independently of the company's insurance policy, provides by clause 5.3 of the handbook for long-term incapacity payments only to employees who are unable any longer to work, Mr Jowitt is arguably, upon the construction which seems to me the right one, such an employee. I would accordingly allow this appeal to the extent of remitting the outstanding question of whether Mr Jowitt is or has been unable to work within the meaning of the contract of employment to an Employment Tribunal for its determination.

23. LORD JUSTICE KAY: I agree.

24. THE VICE-CHANCELLOR: I agree with the reasons given by my Lord.

ORDER : Appeal allowed with remission to the Employment Tribunal of the outstanding question whether the applicant is or has been unable to work within the meaning of the contract of employment. Costs of this appeal will be paid by the unsuccessful party before the Employment Tribunal. Permission to appeal refused to both parties.

(Order not part of approved judgment)