Case Law Update ill health dismissals and PHI cover

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Published

In an unusual case, the EAT finds on the facts that the employer's ability to dismiss for ill health was not fettered by PHI cover.

Background

The Claimant was dismissed for ill health. One of his claims was that his employer was in breach of an implied term that it would not dismiss him if this had the effect of removing his entitlement to private health insurance (“PHI”) benefit (as per the well-known case of Aspden v Webbs Poultry and Meat (Holdings) Ltd). On the specific facts of this case, the EAT rejected the Claimant’s claim and refused to imply such a term, placing particular reliance on an entire agreement provision within the Claimant’s contract of employment and the absence of any reference to PHI cover.

Facts

After a protracted period of sickness absence (due to a back injury) spanning over 3 ½ years, the Claimant was eventually dismissed on grounds of capability. More specifically, because of (a) his absence from work due to ill health for (in the employer’s words) “an extraordinarily long time” and (b) the absence of any prospect of his return to work in the foreseeable future. The Claimant benefitted from PHI cover, although (crucially) such benefit was not contained within his contract of employment with the Respondent. At the conclusion of his notice period, and following notification of the possibility by his employer, the Claimant was paid the balance of his PHI payments (up to his 60th Birthday – as provided for in the relevant policy) by way of a lump sum payment. He subsequently lodged several ET clams, including one for breach of the implied term as set out above.

Decision

In a somewhat surprising decision, the EAT distinguished Aspden from the present case and rejected the Claimant’s breach of contract claim. (In Aspden an otherwise unrestricted power to terminate the contract of employment was held to be qualified by an implied term to the effect that the employer would not terminate the contract whilst the employee was incapacitated where to do so would have the effect of preventing an incapacitated employee qualifying for a PHI benefit).

In short, and in reliance on the well-established principle that an implied term cannot override an express term, the EAT held that:

  • Since the Claimant’s employment contract contained an “entire agreement” provision and did not contain any reference whatsoever to PHI cover (despite the fact that it was entered into after the PHI cover was taken out), it showed that the Claimant had no contractual right to continuation of this cover; and
  • The Claimant’s contract expressly provided the employer with the right to dismiss after a certain period of absence owing to incapacity (which, in the case of the Claimant, had long since passed) and this was also at variance with the implied term which the Claimant claimed, namely that the employer would not terminate the contract of employment of an employee in receipt of PHI benefits whilst incapacitated from work where the effect would be to disqualify the employee from receiving such benefits.

In any event, even if the Claimant had the benefit of a contractual entitlement, he had been paid the value of those benefits and so had suffered no loss.

Implications

On the face of it, this decision has potentially far reaching consequences. However, it is based on a set of very specific, and unusual, facts. More particularly, in most cases the employment contract will refer to specific benefits, including PHI - even if such benefit is expressed to be discretionary, and/or the detail is to be provided in other documentation. Further, it is relatively unusual to find an entire agreement provision in an employment contract because it is rare for all terms to be included within that one document. Finally, in Aspden the effect of the dismissal was to deprive the employee of the benefit of PHI cover, whereas in this case there was no such effect as the Claimant had already been paid the full value of that benefit (and there was no continuing cover). On the contrary, the effect of the dismissal was to give the employee accelerated receipt of the entire benefit – a windfall of sorts.

Although distinguished in this case Aspden still remains good law (as do the subsequent decisions which followed it). Every case will turn on its own facts.

Regardless of whether there is a PHI scheme in place, it can often be very difficult to know when it is legally safe to dismiss an employee who has been off sick. The stakes are usually high, as employees on long term sickness absence are very likely to qualify as disabled under the Equality Act. However, there are things you can do to make it easier to judge when it is safe to dismiss and to reduce how long you have to wait before deciding to call it a day.

We are currently running National Seminars, Managing Sickness and Absence: take control in these challenging times which explain how to do this. These seminars take an employer focused look at how to manage all types of sickness absence, so that you reduce sickness absence, get employees back to work more quickly and take decisions about terminating employment with more confidence.

Click here for the judgment.

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