Implied term can prevent employee’s dismissal if it ends entitlement to long-term disability benefits

Written by Brabners LLP

Where an employee receives long-term disability benefits to which he is contractually entitled, the employer may not be able to dismiss them on grounds of capability. An implied term in the contract may restrict the employer’s contractual power to dismiss an employee if it would deprive the employee of the benefits to which they would otherwise be entitled under the scheme. In these cases, the tribunals are likely to closely analyse the relevant express clauses in the employee’s contract.

In Aspden v Webbs Poultry & Meat Group (Holdings) Ltd [1996], it was held that it was an implied term of the employee’s contract that an employer could not terminate their employee’s contract if incapacitated for work and received permanent health insurance (“PHI”) benefits, save for the event of gross misconduct. This remained the case despite an express provision in the contract providing for dismissal in the event of prolonged incapacity. The court gave weight to the parties’ intentions at the time of entering into the contracts in reaching their conclusion.

In the recent appeal case of Awan v ICTS [2018], the Employment Appeal Tribunal (“EAT”) overturned a tribunal’s finding that an employer had not breached an implied contractual term in dismissing an employee while he was entitled to a long-term disability benefit plan.

Facts

Mr Awan (“the Claimant”) worked for American Airlines as a Security Agent at Heathrow Airport. His contract of employment entitled him to contractual full sick pay of six months and the benefit of a long-term disability benefit plan. The contract also contained a clause entitling his employer to dismiss on notice.

American Airlines had an insurance policy with Legal & General, a group income protection policy covering the provision of the long-term disability benefits to its employees. The policy provided that the Insured Member would be entitled to benefits under the policy if that person was “a Disabled Member” as outlined under Appendix A of the Group Income Protection Policy. The Claimant fulfilled this criteria.

On 14 October 2012, the Claimant was signed off sick with depression and remained on sick leave until his employment was terminated in November 2014.

On 1 December 2012, the Claimant’s employment was TUPE transferred to ICTS UK Ltd (“the Respondent”) as American Airlines outsourced its security department to them. The Respondent wanted to use a new insurer, Canada Life, to provide its employees with long-term disability cover. Canada Life refused to accept liability for the Claimant as he was already on sick leave at the commencement of the policy.  Legal & General also refused to continue covering the Claimant as its contract was with American Airlines, who the Claimant was no longer employed by. After a complaint was raised, Legal & General agreed to cover the Claimant until September 2014 as a gesture of goodwill.

After a medical capability meeting on 5 November 2014, the Claimant was dismissed by letter on 26 November 2014. The letter explained that the Claimant had been off sick for over two years with no prospect of him returning to work within a defined or reasonable period of time.

The Claimant brought proceedings in the Employment Tribunal (“ET”) claiming that his dismissal, while he was entitled to long-term disability benefits, was unfair and claiming discrimination arising from disability.

ET Decision

The ET held that the Claimant was entitled to receive long-term disability benefits while he remained employed. However, it held that there was no implied term in the Claimant’s employment contract which prevented him from being dismissed on grounds of capacity while receiving such benefits. The express term in the Claimant’s employment contract allowing the employer to terminate the contract on notice was deemed reasonable. However, the Claimant appealed and the EAT took a different view.

EAT Decision

The EAT considered that the whole purpose of disability benefit schemes would be redundant if an employer was able to cease providing benefits under the schemes by dismissing employees when they became unfit for work. In this case, the Respondent’s rights of termination were dependent on the construction of the Claimant’s employment contract.

If the Respondent could dismiss the Claimant under the termination clause, the Claimant’s unequivocal entitlement under the disability benefits clause would lose its merit. In other words, the disability clause would be re-written to provide that his disability benefits would be paid only until he returned to work, retired, died or was dismissed for incapacity. If this interpretation was correct, the Respondent would have no obligation to pay disability benefits in the long-term. Clearly, this was against the intention of the benefit scheme.

The EAT held that a term could be implied into the contract 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 to work.” The EAT considered that the term was clear and enforceable in the circumstances of the case.

Based on this implied term, the EAT set aside the ET’s findings and remitted the case back to the tribunal.

Learning Points

This case serves as a warning to any employers who are considering dismissing an employee on the grounds of capability, especially when there is a long-term disability benefits scheme in place. Whilst such schemes are rare these days, they still exist and should not be ignored.

To reduce exposure to claims from ex-employees, employers should review their employment contracts to ensure that:

  • Any insurance policies incorporated into the contract are referenced so the employer is not exposed if the insurer does not carry out its payment obligations under the policy;
  • There are clear and unambiguous provisions relating to the right to dismiss for incapacity; and
  • Any significant limitations relating to permanent health insurance are drawn to the employee’s attention.

 

This bulletin is for general guidance purposes only and should not be used for any other purpose. Brabners is a Limited Liability Partnership.

 

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