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Implied terms and dismissal for ill health

Implied terms and dismissal for ill health

Published: 15 February 2019

In Awan v ICTS UK Limited [2018], the claimant, Mr Awan, was employed as a security guard by American Airlines. Mr Awan suffered from depression and as a result, was signed off on sick leave for some two years. His employment contract stated that he was entitled to receive long-term disability payments under the disability benefits plan until either (i) return to work, (ii) retirement or (iii) death.

The contract did not refer to an insurance policy or state that disability benefits depended on the insurance provider. In the interim, American Airlines outsourced the security provision to ICTS, the respondent in the case, and the claimant’s employment contract therefore transferred under TUPE. Mr Awan was subsequently dismissed by the respondent on the grounds of capability due to ill health.

The employment tribunal (ET) found the dismissal was fair and that there was no implied term in the contract preventing ICTS from terminating Mr Awan’s employment while paying long-term disability benefits. The ET held that, since there was an express term in the contract allowing ICTS to terminate the contract on notice, it could not be implied that the respondent was restricted from dismissing Mr Awan because that would mean it contradicted that express term. The ET also held that Mr Awan’s dismissal was a proportionate means of achieving a legitimate aim and therefore there was no unlawful (direct) disability discrimination.

Mr Awan appealed to the Employment Appeal Tribunal (EAT), which allowed his appeal and remitted the case back to the ET. The EAT held that on a proper construction of the contract it was contrary to the basic purpose of the long-term disability scheme to permit ICTS to dismiss Mr Awan on grounds of ill-health capability.

It stated that the whole purpose of the scheme would be defeated if an employer could end an employee’s entitlement to long-term disability payments by dismissing him or her when they become unfit for work. The EAT held that the ET’s finding that there was no such implied term was wrong and meant that its decision could not stand; as questions of whether the dismissal was unfair and an act of discrimination arising from a disability needed to be reconsidered in light of the implied contractual term.

The implications

This case is a reminder for employers that terms can be implied into employment contracts and can even supersede express terms, where the implied term reflected the intention of a separate benefits scheme.

This case also serves as an example that employers should handle the dismissal of employees who are entitled to long-term disability benefits with significant care. It has restated the long-held view that where your employees have disability benefit entitlements under their contract (whether such benefits are contractual or not) there should at the very least be an explicit and specified right for the employer to terminate, even if this means such benefits will cease and the employee will no longer be entitled to them.

Dos and don’ts for employers who operate long term disability benefits schemes

DON’T

Simply rely on notice provisions in employment contracts which allow termination of the contract on notice (as in the Awan case). While this does not affect the right to terminate the contract for gross misconduct justifying summary dismissal, or repudiatory breach, it may prevent a termination where there will be a loss of disability benefits, or permit the consideration of an implied term that will not lawfully permit a termination on such basis.

DO

  • Make sure contracts of employment and terms of the scheme specify that entitlement to disability payments is subject to the particular insurance policy, the insurer making (full) payments to the employer and that they are able to be amended or withdrawn at the employer’s discretion.

  • Include a term in the contracts, expressly and specifically entitling an employer to dismiss for capability even where the employee is receiving long-term disability payments. However, note that such an express right to dismiss on the grounds of incapacity notwithstanding, the entitlement to disability benefits has not yet been properly tested by the courts.

  • Consult an employment lawyer before making a decision to dismiss an employee who is receiving long-term disability payments, to seek to avoid or mitigate the risk of litigation.

This article was first published by People Management on 13 February 2019.

Andrea London | Partner | Head of Employment

For further advice, or to discuss your case, please contact Andrea London at andrea@fletcherday.co.uk or on 020 7632 1442


The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.