Long-term disability benefits: have employers inadvertently tied their own hands?

Long-term disability benefits: have employers inadvertently tied their own hands?

In fact, the EAT decided that there was an implied contractual term in the disabled employee’s contract that prevented his employer from dismissing him because of his incapacity.

Background and the facts

Mr Awan was employed by American Airlines as a security agent on 11 April 1992. On 1 December 2012 his employment was transferred to ICTS UK Ltd. Just before the transfer, on 14 October 2012, he was diagnosed with depression and certified as unfit to work. His contract entitled him to both contractual sick pay and the benefit of a long-term disability benefit plan. He remained off work until his employment was terminated by ICTS on 28 November 2014. At this point, he was no longer receiving sick pay but was benefiting from payments under the long-term disability benefits plan.

ICTS terminated Mr Awan’s employment on the basis that he was permanently incapable of carrying out his role. They came to this conclusion having considered the fact that his symptoms had not improved since 2012 and the parties had been unable to agree on any adjustments that could be made to facilitate a return to work. The underlying issue for ICTS was that the insurance cover they had in place to pay the long-term disability benefits did not include cover of the payments to Mr Awan because he was already on sick leave when they took out the policy. The insurer agreed to make the payments to Mr Awan as a gesture of goodwill until September 2014 but, after that time, ICTS were liable themselves to make the payments.

Mr Awan brought a claim in the ET alleging that the dismissal while he was entitled to long-term disability benefits was unfair and was also an act of unlawful discrimination because of something arising from his disability. It was agreed by the parties that he was disabled, the dismissal was for capability and the dismissal was for something arising out of his disability.

What did the ET decide?

The ET dismissed the claims of unfair dismissal and disability discrimination. It held that ICTS were only obliged to pay Mr Awan long-term disability benefits while he was an employee, and that there was no implied term in his contract preventing him from being dismissed for incapacity while he was entitled to receive such benefits. In light of his sickness, the continued employment of Mr Awan would have caused ICTS operational difficulties and therefore they had acted reasonably in dismissing him for incapacity. The ET found that the dismissal was fair. They also decided that the dismissal was a proportionate means of achieving a legitimate aim so there was no unlawful discrimination.

What did the EAT decide?

Mr Awan appealed to the EAT on the basis that the ET had incorrectly interpreted the construction of his employment contract. The EAT held that the ET were correct that Mr Awan was contractually entitled to the long-term disability benefits regardless of how the payments were funded, as the contract did not expressly state that payments were conditional upon the relevant insurance being in place. Therefore, on a proper construction of the contract, it was contrary to the functioning of the long-term disability plan, and to its purpose, to permit ICTS to exercise a contractual power to dismiss which would deny Mr Awan of the very benefits which the plan envisaged would be paid. It held that a term could be implied into his employment contract to provide that, once he became entitled to payment of the disability income due under the long-term disability plan, his employer would not dismiss him on the grounds of his continuing incapacity to work.

The EAT held that the ET was wrong in their conclusion that there was no such implied term and, therefore, their finding that Mr Awan’s dismissal was fair and did not constitute discrimination could not stand. Those two points will now be reconsidered by the ET.

Practical things for employers to consider when providing long-term benefits:

  1. Include an express contractual term permitting dismissal in spite of continuing eligibility to receive the benefits.
  2. Caveat the provision of the benefits on the employer’s ability to maintain relevant insurance policies.
  3. Ensure that contracts with insurers are on terms that guarantee continuing cover and payment of the benefits.
  4. In the context of a TUPE transfer, as part of the due diligence process, review any contractual terms relating to long-term benefits and any related insurance policies. Warranties and indemnities from the transferor in respect of any liabilities should be obtained if possible.