Sick of contractual breaches
Ian Machray explores whether a dismissal for sickness absence was in breach of an implied term.
There are many factors that employers must consider when dismissing an employee due to capability following a long-term sickness absence, including consulting with the employee and following a fair process. The recent judgment of the Employment Appeal Tribunal (EAT) reminds employers to also consider what impact the dismissal will have on the employee’s contractual benefits.
The case concerned Mr Awan who was a member of a long-term disability benefit group scheme under his contract of employment. This scheme entitled him to receive two thirds of his salary if he went on long-term sick leave for more than 26 weeks until he returned to work, retired or died.
Mr Awan went on long-term sick leave in October 2012 and was dismissed by reason of his capability in November 2014 as it was decided that he was permanently incapable of carrying out his role. Under the rules of the scheme, Mr Awan’s benefits ceased on his dismissal.
The EAT found that the terms of Mr Awan’s contract were inherently contradictory. On one hand, Mr Awan had a contractual right to receive two thirds of his salary but, on the other hand, the employer had an unfettered right to give notice to terminate Mr Awan’s contract at any time which would result in terminating this benefit.
Tribunals are usually reluctant to imply terms into contracts, but in this case the EAT reasoned that dismissing Mr Awan undermined the whole purpose of the benefit scheme. Accordingly, the EAT implied the term that Mr Awan could not be dismissed by reason of his capability once he became entitled to the benefits under the scheme.
This judgment warns employers to act cautiously when the dismissal of an employee by reason of long-term sickness absence will impact upon the employee’s entitlement to sickness/disability related contractual benefits. Indeed, the judgment highlights that employers are unlikely to be able to sidestep a breach of contract claim by adding an express term giving the employer the right to dismiss for incapability regardless of the impact it may have on the employee’s contractual benefits where the dismissal will defeat the purpose of the contractual benefits.
We would encourage employers to check the terms of any sickness/disability or permanent health insurance benefits schemes carefully, and to seek advice before seeking to dismiss an employee for long-term sickness absence.