UK: Saying Goodbye And PHI

Last Updated: 26 December 2012
Article by Lisa Lewinsohn

What should an employer do when an employee has been absent from work for a very long time and is receiving permanent health insurance ('PHI') benefits? Can the sick employee be dismissed or must he or she remain an employee? The issue is not clear cut – often the receipt of benefits under such insurance policies is reliant upon the employee remaining employed by the employer. Indeed, there have been cases in which employees have brought successful claims for damages against employers who dismiss them in such circumstances.

A recent case (Lloyd v BCQ Ltd) has revisited the issue and may have slightly improved the position of employers in such situations. This article explores the decision that was reached and what it means for employers considering dismissing those on long-term sick leave.


In 1996, the case of Aspden v Webbs Poultry & Meat Group (Holdings) Ltd considered the consequences of dismissing an employee who was entitled to PHI benefits before he had been able to take advantage of the PHI policy. Mr Aspden's contract of employment contained two crucial but contradictory provisions. On the one hand, the contract provided for the provision of PHI benefits whilst an incapacitated employee remained employed by the employer. On the other, the contract expressly permitted the employer to dismiss for prolonged incapacity.

The Court decided that it was necessary to resolve the conflict by implying a term into the employment contract to the effect that employment would not be terminated whilst the employee was incapacitated and could qualify for PHI benefits (unless he was guilty of gross misconduct justifying immediate dismissal). As a result, Mr Aspden recovered damages for breach of contract directly from his employer. A number of other cases followed in which employers were caught out by discrepancies between what they had offered by way of benefits on the one hand and what they thought they were entitled to do under the contract on the other. This led to employers becoming very careful about the way they drafted these sections of their contracts as the claims were for substantial sums amounting to multiple years of salary.

The Lloyd Case

The recent case of Lloyd v BCQ resulted from the dismissal of Mr Lloyd by BCQ Limited whilst he was incapacitated and already receiving PHI benefits. Amongst other things, Mr Lloyd sought to establish (as in Aspden) that there was an implied term in his contract to the effect that he could not be dismissed whilst in receipt of such benefits.

However, unlike Mr Aspden's contract, Mr Lloyd's contract of employment did not contain an express provision entitling him to PHI benefits (it was an historic benefit from a period pre-dating his current contract of employment). The contract also included an express right to terminate employment in the case of incapacity and a provision stating that the contractual terms within the agreement contained the entire agreement between the parties and superseded all previous agreements.

Consequently, once it became apparent that Mr Lloyd would not be capable of returning to work in the foreseeable future, his employers dismissed him with notice pursuant to his contract. Mr Lloyd was also paid out a lump sum amount representing the full balance of monies due from the PHI provider.

The Employment Appeal Tribunal ('EAT') concluded that a term that the employer would not dismiss him whilst he was receiving PHI benefits should not be implied into Mr Lloyd's contract. The lack of reference to PHI cover in his contract was held to mean that he had no contractual right to continued cover. The EAT also thought that the existence of an express right to terminate in circumstances of incapacity meant that there was no contradiction as there had been in Mr Aspden's contract. Hence there was no need to imply any term and the employer could bring the contract to an end.


This case is arguably helpful in establishing some limits to what employees can expect in such situation.

That said, it is a surprising decision in some ways. For example, the PHI benefit had been provided to employees for many years and it is arguable that there was therefore a contractual right to it. That argument might succeed in other cases on similar facts. The case certainly does not give an employer carte blanche to terminate an employment contract whenever it appears that there is a clause in the contract entitling it to do so. The facts of this case were very specific and any employer proposing to end an employment relationship, where the consequence will be to deprive the employee of a valuable benefit, should take advice before doing so. Otherwise the employer may find itself having to fund the benefit from its own pocket.

The case is a reminder that some precautionary measures are sensible when offering potentially expensive benefits such as PHI insurance, such as:

  • a clearly drafted express right in the contract to terminate employment when an employee is incapacitated for a significant period;
  • a statement that this right may be invoked even if dismissal will prevent receipt of PHI benefits;
  • a discussion with the PHI provider as to whether, once an employee is eligible for PHI benefits, they do not need to remain an employee to continue to receive them. This should then be reflected in the employee's contract;
  • a provision in the contract to the effect that, if the insurer refuses to provide cover, then the employer is not obliged to provide cover itself, arrange alternative cover or take any action on the employee's behalf; and
  • a provision limiting entitlement to benefits provided by the insurer and allowing for variation (for example if the insurer's terms change).

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.