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In Sickness and In Permanent Health

29th November 2018

By Andrew Knorpel, Head of the Employment team.

Many employers provide permanent health insurance (PHI) (also known as group income protection) as a benefit to their staff. This offers the comfort of continued payment of salary (or more usually a proportion of salary) in circumstances where the employee has been unable to work due to ill-health for a period of, say, six months. A standard PHI set-up involves the employer taking out an insurance policy to fund payments to the employee. In order to ensure that the employer is not liable for any sums which are not recoverable under the insurance policy, the employer must not give any contractual promise to the employee to make particular payments unless the insurer pays.

If an employer has put a PHI scheme in place, it is reasonable to assume that they would not deliberately deprive the employee of payments under the scheme unless they were justified in doing so. There have been a series of cases over the years examining whether an employer can terminate an employee on the grounds of ill-health where they would otherwise have been able to claim under the PHI scheme.

In the recent case of Awan v ICTS UK Ltd, the EAT has held that an employment tribunal was wrong to decide that dismissing a disabled employee on the ground of ill-health in these circumstances was fair and not discriminatory. The tribunal had wrongly rejected the employee’s argument that there was an implied contractual term that prevented his employer from dismissing him in these circumstances. Mr Awan had been medically certified as incapable of carrying out his role, there was no likelihood of his condition improving and his employer felt unable to make any adjustments which might facilitate his return to work. By this time, he had been in receipt of payments under the long-term disability benefits plan.

ICTS admitted that Mr Awan was disabled, that he was dismissed for capability and that this was because of something arising from his disability. Notwithstanding previous case law on similar facts, the tribunal rejected Mr Awan’s argument that there was an implied term that ICTS would not dismiss him due to capability where he was entitled to claim under the PHI scheme. They went on to find that he had been fairly dismissed and that he had not suffered unlawful disability discrimination (on the basis that his dismissal was a proportionate means of achieving a legitimate aim).

The EAT held that it made no sense to provide access to a PHI scheme and then deprive an employee of the right to claim under it. They confirmed that there was an implied term to this effect which would limit an express right to terminate employment for ill-health in these circumstances. As a result, the case was sent back to the tribunal to reconsider the issues.

You should therefore be very wary of dismissing an employee for capability even where you have expressly reserved the right to dismiss as damages for unlawful discrimination (aside from any unfair dismissal) could be substantial.


The contents of this update are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this update. © Mundays LLP 2018.

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