Many of you will operate schemes that provide long-term sickness or incapacity benefits, but what are the risks if you dismiss an employee for long-term incapacity where continued employment is required to remain in the scheme and use its benefits?

In Awan v ICTS UK Ltd the EAT implied a term into a contract of employment that 'once an employee has become entitled to payment of disability income due under the long-term disability plan, the employer will not dismiss him on the grounds of his continuing incapacity to work.' The employer had therefore acted in breach of contract when it dismissed him. The questions of whether it had unfairly dismissed and or discriminated against Mr Awan for a reason related to his disability were referred back to the tribunal.

This decision, while turning on its own particular facts, suggests that it would be risky for you to rely on an express contractual right to terminate for incapacity where the contract also provides the employee with the contractual right to disability benefits or permanent health insurance (PHI). So how can you protect yourself?

Draft carefully

Ensure that:

Proceed with caution

Exercise caution before you dismiss an employee for ill health if that means the employee is no longer entitled to permanent health insurance or other long-term disability benefits. Take specialist advice because if you get it wrong you may face claims for breach of contract or, as in Awan, for unfair dismissal and disability discrimination.

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Many of you will operate schemes that provide long-term sickness or incapacity benefits, but what are the risks if you dismiss an employee for long-term incapacity where continued employment is required to remain in the scheme and use its benefits?

In Awan v ICTS UK Ltd the EAT implied a term into a contract of employment that 'once an employee has become entitled to payment of disability income due under the long-term disability plan, the employer will not dismiss him on the grounds of his continuing incapacity to work.' The employer had therefore acted in breach of contract when it dismissed him. The questions of whether it had unfairly dismissed and or discriminated against Mr Awan for a reason related to his disability were referred back to the tribunal.

This decision, while turning on its own particular facts, suggests that it would be risky for you to rely on an express contractual right to terminate for incapacity where the contract also provides the employee with the contractual right to disability benefits or permanent health insurance (PHI). So how can you protect yourself?

Draft carefully

Ensure that:

  • the contract of employment refers to, and incorporates, the actual insurance policy so that you are not exposed if the insurer pays out less than expected, or nothing at all, under the policy
  • any significant limitations under the PHI policy are specifically drawn to the employee's attention to ensure they are incorporated into the contract
  • make it clear that you will pay such benefits only where the insurer agrees to fund such payments
  • the termination clause specifically includes the right to terminate for incapacity.

Proceed with caution

Exercise caution before you dismiss an employee for ill health if that means the employee is no longer entitled to permanent health insurance or other long-term disability benefits. Take specialist advice because if you get it wrong you may face claims for breach of contract or, as in Awan, for unfair dismissal and disability discrimination.