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Can an Employer Dismiss When an Employee is Entitled to Long-Term Disability Benefits?

on Friday, 07 December 2018.

Will an employer breach the contract of employment if they dismiss an employee who is entitled to long term disability benefits? The Employment Appeal Tribunal has considered this issue in Awan v ICTS UK Ltd.

The Facts

Mr Awan was employed as an international security coordinator by American Airlines and was signed off as unfit to work with depression in October 2012. Mr Awan's employment contract provided for six months full sick pay and, if he remained on sick leave after that time, payment of long-term disability benefit until he returned to work, retired or died. American Airlines covered the cost of the long term benefit through a group income protection policy with Legal & General.

Following an outsourcing of American Airline's security provision, Mr Awan's employment TUPE transferred to ICTS UK Ltd (ICTS) in December 2012. ICTS put in place new insurance cover with Canada Life.

When Mr Awan qualified for long term disability benefit under his contract of employment Canada Life refused to provide cover on the basis that Mr Awan had been off sick at the time of the transfer to ICTS. After an intervention by American Airlines, Legal & General agreed to provide cover on a temporary basis as a gesture of goodwill until September 2014.

In November 2014, in the absence of any insurance cover, ICTS dismissed Mr Awan on the basis of permanent incapacity. Mr Awan brought claims in the Employment Tribunal (ET) arguing that terminating his employment whilst he was entitled to long-term disability benefits amounted to unfair dismissal and discrimination arising from disability.

ET Decision

The ET found that although ICTS was contractually required to pay Mr Awan's long-term sickness benefit until return, retirement or death, there was no express or implied term in his contract that meant ICTS was prevented from dismissing him at a point when he was receiving that benefit.

The ET held that his dismissal was fair. Furthermore the ET held that there was no discrimination arising from disability as ICTS could justify the dismissal as a proportionate means of achieving a legitimate aim. The ET held that Mr Awan's absence caused operational difficulties for ICTS and that dismissal was a proportionate means of resolving this. Mr Awan appealed to the Employment Appeal Tribunal (EAT).

EAT Decision

The EAT held that Mr Awan's contract of employment contained contradictory terms. On the one hand he had an express contractual right to be paid long-term disability benefits until he returned to work, retired or died. This provision did not provide for the benefit to end if his employment was terminated for incapacity. On the other hand the contract contained an express right for ICTS to terminate Mr Awan's employment on notice at any time.

The EAT looked at the contract as a whole and held that the intention of the parties in this case was to restrict ICTS's power to terminate Mr Awan's employment at a time when he was receiving long-term disability benefits. This intention could be implied from the limited circumstances when the long-term disability benefits were expressed to end: return, death or retirement.

The EAT therefore held that the contract included an implied term that once Mr Awan was entitled to disability benefits ICTS would not dismiss him on the grounds of incapacity for work. As a result, Mr Awan was dismissed in breach of his contract of employment.

The case has now been remitted to a fresh ET to consider whether Mr Awan's dismissal in breach of contract was therefore an unfair dismissal and/or a disproportionate means of achieving a legitimate aim for the purposes of his discrimination claim.

Best Practice

The case illustrates that employers need to be very careful when drafting long-term sickness and/or disability benefits to ensure those benefits do not act as a bar to dismissal. The express provisions should be clear in confirming that the employer retains the right to dismiss members of staff for any potentially fair reason including ill-health capability notwithstanding that they are entitled to long-term disability benefits.

Employers in this situation should also always consider what "legitimate aim" they are seeking to achieve and whether dismissal is a proportionate means of achieving that aim.

Finally, if any benefit is underpinned by an insurance policy then the express provisions in relation to that benefit should confirm that the provision of that benefit is always subject to the employer having such an insurance policy in place and the terms of that policy.

For further information on employment issues, please contact Nick Murrell in our Employment Law team on 0117 314 5627.