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Employee’s Dismissal while Entitled to Long Term Disability Benefits was in Breach of an Implied Term

In the recent case of Awan v ICTS [2018] the Employment Appeal Tribunal (“EAT”) held that a term may be implied into a contract of employment stating that an employer will not dismiss an employee for incapability if it would thwart entitlement to long-term disability benefits.

Mr Awan worked for American Airlines as a security agent at Heathrow Airport. Under his contract of employment, he was entitled to the benefit of an insured long-term disability benefit plan (also known as a permanent health insurance clause). The terms of the plan stated that the benefits would terminate in the event the employee was no longer in employment.

In October 2012, Mr Awan was signed off sick with depression. His employment was then transferred from American Airlines to ICTS UK Ltd (“ICTS”) under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) after American Airlines outsourced its security department. This meant that the employer’s obligations under the disability benefit plan also transferred under TUPE.

Mr Awan was then dismissed on account of capability. He brought a claim to the employment tribunal that his dismissal whilst entitled to long-term disability benefits was unfair and constituted discrimination arising from disability.

At first instance, the employment tribunal found that ICTS was contractually obliged to pay Mr Awan long-term disability benefits while he remained employed. However, there was no implied term in his contract preventing ICTS from dismissing him for incapability while he was entitled to receive such benefits. It relied on the express term in the contract allowing ICTS to terminate the contract on notice and reasoned that an implied term cannot contradict or restrict an express term of a contract. The tribunal therefore held that the dismissal was fair and a proportionate means of achieving a legitimate aim so there was no unlawful discrimination arising from disability.

Mr Awan appealed to the EAT. The EAT allowed the appeal and held that in dismissing Mr Awan, ICTS had acted in breach of an implied term of the contract.

The EAT found that on a proper construction of Mr Awan’s contract of employment, a term should be implied that “once the employee has become entitled to payment of disability income due under the long-term disability plan, the employer will not dismiss him on the grounds of his continuing incapacity to work.” The term operated to restrict the express contractual right to terminate Mr Awan on notice if it would frustrate the contractual entitlement to long term disability benefits.

The issues of whether the dismissal was unfair or amounted to discrimination arising from disability were remitted to the tribunal.

This case highlights the difficulties of permanent health insurance clauses entitling employees to long-term disability benefit plans. When drafting such clauses, employers should ensure that the termination clause specifically includes the right to terminate for incapacity notwithstanding the benefits clause, albeit that this might not be enforceable following Awan v ICTS.

This bulletin is for general guidance purposes only and should not be used for any other purpose.

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