Some employers provide long-term sickness or incapacity benefits to their employees such as permanent health insurance (PHI) although employers may then seek to terminate employees' contracts of employment when they are incapacitated for work and could qualify for insurance benefits. In the past courts have implied contractual terms preventing an employee being dismissed where this would deprive them of those benefits, subject to any relevant express contractual terms.
Mr Awan worked for American Airlines (AA). His employment contract entitled him to 26 weeks contractual sick pay. If he was unable to work because of illness or injury for more than six months he was then entitled to be paid two thirds of his basic salary under a Legal & General long term disability benefit plan until he returned to work, retired or died. There was no provision for the benefit to end on dismissal. It was also a term of the policy that, to receive a benefit, employees remained in employment of the employer participating in the scheme.
Mr Awan suffered from depression and went on sick leave. About two months later AA outsourced his department to ICTS. His employment and that of 17 other employees transferred under TUPE and the employer's obligations under the plan also transferred to ICTS. He remained on sick leave receiving his 26 weeks’ contractual sick pay. However Legal & General refused to provide PHI benefits to Mr Awan as its contract was with AA and he was no longer employed by AA. ICTS asked a new provider, Canada Life, to provide cover but it refused as Mr Awan was already on sick leave. Legal & General did subsequently agree to pay benefits for an interim period, followed by ICTS itself. However ICTS then terminated Mr Awan's employment on the basis that he was permanently incapable of carrying out his role and neither party could agree on any reasonable adjustments to enable him to work.
Mr Awan brought a claim in the employment tribunal for both unfair dismissal and unlawful discrimination. He alleged that ICTS's decision to dismiss him while he was still entitled to long-term disability benefits was unfair and was also unlawful discrimination because of something arising from his disability.
The tribunal rejected Mr Awan's claims. It decided that although while he was employed by ICTS he was entitled to PHI there was no implied term in his contract preventing ICTS from dismissing him for incapability even when receiving those benefits. His employer had also acted reasonably in dismissing Mr Awan for a reason arising from his disability because it was a proportionate means of achieving a legitimate aim.
Mr Awan appealed and the Employment Appeal Tribunal (EAT) allowed his appeal. By dismissing Mr Awan, ICTS had acted in breach of an implied term of the contract. Because Mr Awan's contract did not link his entitlement to PHI to being dependent on the rules of the particular policy then he just had a contractual entitlement with his employer to be paid two-thirds of his salary following 26 weeks of sick leave until he returned to work, retired or died. There was no mention of the employer being able to dismiss for incapacity or to dismiss without cause. If the contract was rewritten to allow for these latter options then ICTS would never have to continue to pay PHI benefit if it chose not to. The EAT therefore concluded that a term could be implied into Mr Awan's contract to the effect 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 remitted back to an employment tribunal the issues of whether Mr Awan’s dismissal was unfair, whether the discrimination arising from disability was justified and whether ICTS would have dismissed him had it correctly appreciated its contractual obligation to pay PHI if he continued to be employed.
Employers should ensure that any contractual right for an employee to receive long term disability benefits is tied directly to the policy and its provider. Eligibility should be subject to the rules of a particular scheme and make clear that any entitlement by an employee to benefits only arises if the insurer makes the payments. In what circumstances can benefits be ended should also be expressly set out. On a TUPE transfer assurances should be sought that such the benefits of such insurance cover currently will transfer, and appropriate warranties requested.