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Long-term disability benefits and capability dismissals

The Employment Appeal Tribunal in the case of Awan v ICTS Ltd has held that there must be a term implied into a contract of employment that an employer cannot terminate for incapacity while an employee is in receipt of long-term disability benefits.

Background

The Claimant was employed by American Airlines at Heathrow Airport. His contract of employment provided that after 26 weeks of sick leave he would be entitled to a long-term disability benefit plan (under his employer’s group income protection policy) which would pay two-thirds of his salary until his employment ceased. The contract also provided that the employer could dismiss him with notice.

In 2012, the Claimant was diagnosed with depression and went on sick leave. While on sick leave, the Claimant’s employment transferred to ICTS UK Ltd (“ICTS”). In 2014 the Claimant had not returned to work and was dismissed by ICTS for reason of capability, with ICTS concluding that there was no prospect of the Claimant returning to work.

The Claimant issued tribunal proceedings claiming that his dismissal, while he was entitled to the long-term disability benefit plan, was unfair and discriminatory.

Decision

The Employment Tribunal held that there was no implied term in the Claimant’s contract of employment that prevented ICTS from dismissing him for capability while he was entitled to the disability benefits. As there was an express term in the contract of employment which allowed for dismissal on notice, the Tribunal found that there could not be an implied term which would contradict this. Therefore Tribunal held that the dismissal was fair and a proportionate means of achieving a legitimate aim (meaning there was no disability discrimination).

The Claimant appealed.

The Employment Appeal Tribunal (“EAT”) disagreed with the Employment Tribunal. It held that a term could be implied into the Claimant’s contract that once he was in receipt of long-term disability benefits he would not be dismissed by reason on incapacity to work. The EAT found that the whole purpose of the disability benefit plan would be defeated if an employer could end an employee’s entitlement by dismissing them for incapacity.

The case was remitted to the tribunal to reconsider the claims.

Comment

This is an important case for employers who offer long-term disability benefits or permanent health insurance (“PHI”) schemes to their employees. In this case, following the TUPE transfer, the new insurer refused to pay benefits to employees who had been sick before the transfer (including the Claimant) and the previous insurer refused to pay the benefits as the Claimant’s employment with the indemnified party (American Airlines) had ceased. Nevertheless, the EAT held that there was an obligation on ICTS to pay the benefits under the disability plan regardless of whether the insurer paid out under the policy or not. This could result in serious financial consequences for employers.

If providing long term disability benefits or PHI to employees it is advisable to make clear in the contract that such benefits are dependent on the insurance policy and the employer will not be liable to pay the benefits in the event the insurer does not pay. Including an express term which states that an employer may terminate for reason of incapacity despite being in receipt of disability benefits may help but it remains to be seen whether such provision would be enforceable following this case.

 

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