Dismissing An Employee On Long Term Sick Leave When In Receipt Of PHI Benefits

It has not been clear when an employer can dismiss an employee on long term sick leave and receiving permanent health insurance benefit ("PHI"). Until now, we had thought that employers could only dismiss such employees for gross misconduct and possibly redundancy. However, the case of Lloyd v BCQ Ltd suggests that, where there is a clear contract term which states that the employer can dismiss for ill health, then, despite PHI being in place, it may be possible to dismiss without being liable for damages for ongoing PHI payments. Employers are, nevertheless, advised to exercise extreme caution since getting it wrong will expose them to potentially very large liabilities.

What happened in this case?

In this case, the Claimant (Mr Lloyd) had been on long term sick leave for four years before being dismissed due to ill health. There was no foreseeable prospect that Mr Lloyd would be able to return to work in a reasonable timeframe and he had said to his employer, BCQ that he wanted "just to remain on PHI". Relying on the case of Aspden1, Mr Lloyd argued that there was an implied term that he should not have been dismissed while he was receiving PHI, unless the dismissal was for gross misconduct.

Mr Lloyd was informed that his PHI benefit would continue until his 60th birthday, which was imminent and which was when the policy expired. He was paid a lump sum at the end of his notice period to reflect this and therefore though Mr Lloyd argued he had not received all of his benefits under the PHI policy, the Court Appeal disagreed and said that he had suffered no loss.

In relation to whether there was an implied term that Mr Lloyd should not have been dismissed while he was on PHI, unless it was for gross misconduct, the Court of Appeal disagreed with Mr Lloyd. It could not imply a term into his contract that prevented his employer from dismissing him when he was on PHI as this would not be consistent with the express terms of his contract. This was because the contract did not give Mr Lloyd an express contractual right to PHI coverage but did:

expressly state that the employer could terminate Mr Lloyd's employment on notice if he was incapacitated from work for a specified period contain an "entire agreement clause" which made it clear that the written contract contained the entire understanding between the parties As well as this, the Court of Appeal went even further and suggested that even if there is an implied term in the employment...