Most people prefer not to think about long-term illness but it is more prevalent than one might first think. A recent UK study conducted among a representative sample of more than 5,000 workers found that 11% of people have already been off work for longer than six months because of illness or injury.

Permanent health insurance (PHI) remains a common benefit being offered by employers in the Channel Islands to provide the employee with increased security if they unfortunately find themselves too ill to work for an extended period of time (typically over six months). Unlike the position in England, there is no legal requirement for employers to pay sick pay in Jersey causing salary protection schemes like PHI to be particularly important.

However, employers must tread with caution before implementing PHI schemes. It is important for employers to note that poorly drafted contracts can mean that simply arranging for the settlement of the PHI insurance premiums may not be the end of its involvement or, indeed, liability. Matters can escalate when an employee (or exemployee) claims that he/she should be, or remain to be, entitled to PHI benefits and the relevant insurer says otherwise.

Potential pitfalls

A fundamental problem for employers is that the employee (or ex-employee) may not have a direct line of action to the insurer and will instead look to the employer. The employee can bring, potentially, two types of claims against the employer:

  1. A claim for damages (money) for breach of contract which should have been paid to him/her by the employer under the PHI scheme; or
  2. A claim for damages (money) for breach of the employer's implied duty to secure payments from the insurer under the PHI scheme (essentially the employer should force the insurer to pay up).

PHI schemes are, as they say, permanent (until the death of the employee), and can provide the employee with a salary contribution of up to 75%, resulting in a potential significant liability for whoever may end up writing the cheque.

Ensuring the relevant contracts are suitably drafted is likely to be the most effective way of reducing an employer's risk of being liable for potential damages. For example, limiting the employer's liability under the contract to ensuring the PHI premiums are paid rather than expressly providing for payment of the incapacitated employee's salary even if the PHI insurer has rejected the employee's claim.


A further problem encountered by employers is what to do with an employee who is subject to prolonged incapacity. The insurer's obligation to pay benefits ceases with the termination of the employee's employment with the employer, so can an employer dismiss an employee who is in receipt of PHI? The answer is, sadly, uncertain.

Notwithstanding this uncertainty, a leading authority in England has held that there is a general implied obligation on an employer not to dismiss an employee who becomes entitled to claim benefits under a PHI scheme. Further, the obligation not to dismiss can be triggered even before the right to claim benefits materialises, if it seems likely that the employee may be incapacitated from working for more than the necessary qualifying period.

There are ways in which dismissal of a employee in receipt of PHI could be justified; such as dismissal for a repudiatory breach of the employment contract (typically gross misconduct) or alternatively in the case of a genuine redundancy, but matters must be progressed very carefully.


Whilst PHI may appear to give employer's more problems than it solves, the incorporation of PHI schemes in employment contracts in the Channel Islands is unlikely to disappear given the lack of statutory protection afforded to employees at present. However, employers can take steps to ensure they are adequately protected by ensuring their employment contracts and handbooks are suitably drafted having obtained specialist legal advice.

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.