No duty not to dismiss while employee receives PHI benefits

11 December 2012

In Lloyd v BCQ Ltd the claimant was dismissed because of long-term absence due to ill-health. He claimed that this was in breach of an implied term that his contract could not be terminated while he was in receipt of permanent health insurance (PHI) benefits. The Employment Tribunal disagreed and its decision has been upheld by the Employment Appeal Tribunal (EAT).

The claimant was relying on similar case Aspden v Webbs Poultry where the court said that there was an implied term that the employer would not terminate the contract of an employee on long-term sick leave unless there had been a fundamental breach of contract by the employee. On the evidence, the employer did not intend to exercise its right to dismiss so as to end the employee’s right to benefit from PHI.

The decision in Aspden was justified on the facts of the case in order to reconcile two express terms that conflicted with one another – the employer’s right to terminate and the employee’s continuing right to PHI benefits.

The EAT confirmed that the employer’s freedom to terminate an accordance with an express contract term will only be affected by an implied term in very limited circumstances. For example - an employer cannot terminate the contract of an employee on long-term sick leave solely for the purpose of avoiding the obligation to pay sick pay. There must be a reasonable and proper cause for the dismissal. In Mr Lloyd’s case it was that he had been absent from work for an extraordinarily long time and there was no prospect of his return in the foreseeable future.

Points to note

• Employers should appreciate the risks in offering benefits – not just PHI but also share option schemes that may operate to prevent a dismissal – as it can be implied into the contract that the employer would not terminate at a time that would deprive the employee of the existing or potential benefit.

• In Lloyd, the risk was minimised by the wording of the contract and the fact that the PHI benefit was due to terminate at age 60 in any event and, on the facts, the employee suffered no loss. Employers should check their contract wording to make sure that employees are clear as to their rights.

Other cases in our December 2012 UK employment Law update:

> TUPE: Court of Appeal on service provision change
> Emails are not automatically company property
> How to deal with previous written warnings when considering dismissal