In the case of Lloyd v BCQ Mr Lloyd was employed as a Works Director by BCQ, a printing company. From 1988 BCQ provided permanent health insurance (PHI) to Mr Lloyd, although there was no reference to this in his contract. In 1992 Mr Lloyd signed a new contract, which contained a clause giving BCQ an explicit right to terminate his employment in the event of his incapacity.
In 2007, Mr Lloyd went off on long-term sick leave. Subsequently, in March 2010, Mr Lloyd informed BCQ that it was unlikely that he would ever return to work. BCQ subsequently negotiated a cash settlement with his PHI provider for him totalling over £38,000 (being a lump sum representing the total payments due to Mr Lloyd under the PHI scheme up until his retirement age of 60). In November 2010, Mr Lloyd was informed that the company had the option to dismiss him but that his PHI would continue until he reached the age of 60 in December 2011. On 25 November 2010 BCQ dismissed Mr Lloyd on ill-health grounds. However, Mr Lloyd was informed that his remaining entitlement to PHI would be paid to him as a lump sum.
Mr Lloyd brought several claims in the tribunal, including a claim for breach of contract in relation to the PHI. He argued that there was an implied term that his employment would not be terminated while he was in receipt of PHI benefits, where the effect of such termination would be to disqualify him from benefits. Mr Lloyd's other claims included unfair dismissal, victimisation and age discrimination.
The tribunal held that Mr Lloyd had been fairly dismissed. His other claims were also dismissed. Specifically, the tribunal held that the PHI benefits were not due under the employment contract, as the 1992 document was an "entire agreement" contract and made no reference to PHI. The tribunal also held that an employer is entitled to terminate an employee's contract by reason of ill-health despite fact that the employee might be in receipt of PHI benefits, as long as they do not end the employee's contract solely to get out of being responsible for meeting any more PHI benefits.
Comment: It is somewhat surprising that the EAT accepted the prevalence of the "entire agreement" clause in the 1992 contract, even though Mr Lloyd had continued to receive PHI benefits after signing it. However, it was clearly the right decision as Mr Lloyd had suffered no financial loss – he was paid a lump sum equal to the sums he would have received up until his retirement age. Interestingly, this decision suggests that an employer can still fairly dismiss an employee on PHI for ill health if they can show that it was for a good reason, i.e. not just to avoid responsibility for PHI benefits. However, what constitutes a good reason may well be the subject of further litigation.
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