Employment

Do you provide, or are you considering providing, permanent health insurance (PHI) to your employees? If so, the EAT has highlighted the importance of taking care when drafting contracts of employment; and the things to be aware of when seeking to dismiss an employee who is receiving PHI benefits.

The facts of the case

The Claimant had been employed by American Airlines as a security agent at Heathrow Airport. Under his contract of employment he was entitled to a long term disability benefit plan, on top of full contractual sick pay for 26 weeks. The policy provided that the benefits would terminate if the employee was no longer in employment.

The Claimant was certified as being unfit to work on account of depression in October 2012. During this time his employment transferred to the Respondent by way of a TUPE transfer. The Respondent used a new insurer to provide long term disability cover but it refused to accept liability for people like the Claimant who were already absent when the policy was entered into. The old insurer also refused to pay out as the Claimant was no longer employed by the company with which it was contracted. The Respondent made some equivalent payments directly to the Claimant while trying to resolve the situation.

The Claimant remained absent on sick leave until he was dismissed in November 2014. Clause 11 of his contract of employment gave the employer a right to terminate the contract at any time on notice.

In dismissing him, the Respondent noted that the Claimant’s symptoms had not improved, and that the parties had been unable to agree on any adjustments that would aid his return to work. The decision was therefore taken to terminate employment on the grounds of medical capability.

The claim

The Claimant argued that his dismissal while on long-term benefits was unfair, and discriminatory because of something arising from his disability.

The questions to be considered by the tribunal were whether the Respondent had acted reasonably when deciding to dismiss, and whether it was a fair and proportionate means of achieving a legitimate aim.

It was common ground that the Claimant was a disabled person in terms of the Equality Act 2010; that he was dismissed for a reason relating to capability; and that the dismissal was due to something arising from his disability.

The EAT’s decision

The EAT overturned the tribunal’s decision and found that, on a proper construction of the contract, it would be contrary to the function and purpose of the long-term disability plan to permit the Respondent to dismiss the Claimant for capability, as this would deny him the very benefit which the plan envisaged would be paid.

The EAT decided that a term could be implied that “once the employee has become entitled to payment of disability income due under the long-term disability plan, the employer will not dismiss him on the grounds of his continuing incapacity for work.” This limited the general express right to terminate the contract on notice.

The Claimant’s contract did not state that his entitlement was dependent on the rules of the policy or of a particular insurance provider. There was therefore a contractual obligation on the Respondent to pay disability benefits regardless of whether the insurer paid out under the policy or not.

Regarding unfair dismissal, although a dismissal in breach of contract is not necessarily unfair, the contractual provisions were found to be ‘very relevant indeed’ and part of the overall circumstances to be considered when assessing reasonableness.

The questions of unfair dismissal and disability discrimination were remitted back to a new tribunal to consider.

Comment

Whilst the decision in this case does not establish new law, it is a useful reminder of the difficulty an employer will face when seeking to dismiss an employee with a long term condition who has become entitled to the payment of PHI benefits. Whether it will be possible to do so without being in breach of contract will depend on the precise terms of the contract.

Contracts of employment should be reviewed to ensure that where PHI cover is provided they:

• Include an express right to terminate for incapacity even if the entitlement to PHI benefits has not been exhausted. In the Anwan case the right to terminate was a general contractual right which did not reference incapacity or insurance benefits. A more specific express right to terminate employment referring to incapacity and linking to the PHI provisions is more likely to be found by a court to be enforceable.
• State that the employee’s eligibility for PHI benefits is subject to the rules and terms of the insurance policy and scheme, as amended from time to time.
• Make it clear that the decision as to whether benefits are payable is for the insurer; and if they refuse to provide them, the employer is not liable to pay benefits directly to the employee.

If you would like to discuss anything raised in this blog, please get in touch with your usual Brodies contact. Workbox users will find further guidance on this topic at Sickness and Absence / PHI and Ill Health Retirement.

Catherine Howie

Solicitor at Brodies LLP
Catherine joined the employment team as a newly qualified solicitor in July 2019, having trained at Brodies.

Catherine has experience of dealing with contentious and non-contentious employment law issues including assisting with tribunal claims, providing day-to-day employment law advice to clients in various sectors, contract and policy drafting and the drafting and negotiation of settlement agreements.

In addition to her eight month seat in employment during her traineeship, Catherine also completed seats in the firm’s corporate and contentious construction teams.
Catherine Howie