Can an employee in receipt of long-term disability benefits be dismissed on the grounds of capability?

On the facts of Awan v ICTS UK Limited, no, said the EAT, which has overruled an employment tribunal’s original finding that an employer was permitted to dismiss an employee on the ground of capability while he was still contractually entitled to receive long-term disability benefits. 

In this case, Mr Awan had been employed as a UK-based security agent for American Airlines at Heathrow. He was entitled under his contract to six months full sick pay.  If he was still on sick leave after that time, he was then entitled to benefit from a long-term disability benefit plan, paying two-thirds of his base annual salary until the earlier of his return to work, retirement or death.

In October 2012, Mr Awan was signed off sick with depression.  A couple of months later, in December 2012, his employment transferred to ICTS UK Ltd under TUPE as part of an outsourcing of American Airlines’ security function. The insurer used by ICTS (Canada Life) refused to accept liability for Mr Awan, on the grounds that he was already on sick leave when the policy commenced.  At the same time, the insurer used by American Airlines (Legal & General) also refused to provide any benefits to Mr Awan on the grounds that by the time that Mr Awan became eligible to claim under its policy, he was no longer employed by American Airlines (which was a condition of the policy).  After a complaint had been raised, Legal & General subsequently agreed to provide benefits to Mr Awan until September 2014 on a goodwill basis.

In the autumn of 2014, ICTS followed a capability process with Mr Awan.  His employer took the view that he had been off sick for over two years, there was no reasonable prospect of him returning to work in the foreseeable future, and so terminated his employment in November 2014.

Following his dismissal, Mr Awan claimed that the termination of his employment while he was still entitled to long-term disability benefits was unfair and that he had been a victim of discrimination arising from disability.

The tribunal held that ICTS acted reasonably in dismissing Mr Awan for incapacity and considered that dismissal was a proportionate means of achieving a legitimate aim.  Accordingly, it dismissed the claims of unfair dismissal and discrimination arising from disability.

The EAT disagreed and held that in dismissing Mr Awan, ICTS had acted in breach of an implied term of the contract.  In its finding, it followed the existing case law of Aspden that an implied term (not to terminate the employee’s contract while they were entitled to PHI) could override an express term in the contract (permitting the employer to terminate on notice) on the grounds that the contract was internally inconsistent with its provision of PHI and dismissal.

In particular, the EAT noted that Mr Awan had a simple contractual entitlement to be paid two-thirds of his salary after 26 weeks of sick leave.  His contract did not state that his entitlement to disability benefits was dependent on the rules of a particular insurance policy or provider.  The obligation on ICTS to pay benefits under the disability plan was therefore regardless of whether the insurer paid out under the policy or not.

The EAT was also persuaded by the express term in the contract that Mr Awan was entitled to disability benefits until he returned to work, retired or died. That clause did not provide for dismissal on incapacity. As a result, the termination and disability benefit clauses were inherently contradictory and could not be relied upon. 

Comment

This case confirms the position in the previous authorities and suggests that it would be risky for an employer to seek 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 PHI.

It also serves as a useful reminder that any clauses conferring disability or PHI benefits should be drafted so that the employer’s obligation is to pass any benefits received from an insurer, with no commitment to make the payments themselves in the event that that an insurer cannot or will not pay.

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