Dismissing an employee while they are in receipt of Permanent Health Insurance benefits can potentially lead to paying very costly damages for wrongfully depriving the employee of the benefit. This issue has been considered further in the recent case of Lloyd v BCQ Ltd. Will Walsh from our Employment Team explains.
The risk concerning PHI benefits follows on from the decision of the High Court in the case of Aspden v Webbs Poultry & Meat Group (Holdings) Ltd. In that case, the company had a PHI policy in place which provided employees with pay if they were incapacitated from working by sickness or injury, provided that they remained in the company's employment. When the company terminated Mr Aspden's employment while he was incapacitated, he brought a claim for breach of contract, as the termination of employment brought his benefits to an end. The Court decided that there was an implied contractual term meaning that the employer could not terminate the contract while the employee was incapacitated for work and could qualify for benefits under the policy. Such claims can be very expensive for employers; in the Aspden case it meant having to pay compensation equivalent to 75 per cent of the employee's salary for the remainder of his working life.
In Lloyd v BCQ Ltd, the Employment Appeal Tribunal reached the opposite conclusion. Firstly, Mr Lloyd's contract of employment did not refer to a right for PHI cover to be continued. Secondly, his contract contained an express right for the company to terminate employment in circumstances of incapacity, which meant that there could be no implied term to the contrary. There would be no point in having a clear express term in a contract if an implied term could then override it.
What does this mean for employers?
This recent case is helpful to employers, in that it confirms that the Aspden case was largely based on its own facts and does not establish a general legal principle.
Since the Aspden case, many employers have sought to minimise the risks by including a clause in the employment contract which gives them the express right to terminate for incapacity, notwithstanding the existence of PHI. Until now, there has not been a reported decision on this point but the Lloyd case now appears to support the validity of such a clause.
While the Lloyd case comes as welcome news to those who have already identified the risk and who have sought to address it in the wording of their contracts, it also serves as a useful reminder to those whose contracts are not as robust. In Lloyd, a key factor for the company was that it had clear express terms in the contract, leaving no room for ambiguity or a conflict of terms. If the terms in a contract are not as clear, it does leave it open to a Court to find that there is an implied right for PHI to continue and render a termination of employment unlawful.
Employers should also remember that the way that they manage ill heath situations is just as important as the wording of employment contracts. Even if there is an express term in the contract allowing termination, if an employer behaves in a way that suggests to an employee that PHI cover will be maintained for them regardless, such actions could in themselves lead to a variation of the contract terms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
