News Updates

Implied term prevented dismissal of employee in receipt of long-term disability payments

Tuesday 18th December 2018

The EAT held in Awan v ICTS UK Limited that an implied term should restrict the employer’s ability to dismiss an employee receiving long-term disability payments.

In October 2012, Mr Awan was certified unfit to work as a result of suffering from depression. His contract stated that he was entitled to contractual sick pay and he subsequently became eligible to receive payments under a long-term disability plan. The plan provided that while employed, he would receive two-thirds of his salary until he returned to work, retired or died. Mr Awan remained off work until he was dismissed in November 2014 on the basis that he was permanently incapable of carrying out his role. Mr Awan’s dismissal resulted in the loss of the long-term disability payments. He brought claims for unfair dismissal and disability discrimination.

The ET found that ICTS was contractually obliged to make payment in respect of benefits due under the long-term disability plan while Mr Awan remained employed. However, it also held that there was no implied contractual term preventing ICTS from dismissing him for incapacity while he was in receipt of these benefits. The ET held the dismissal to be fair. In respect of the discrimination claim, ITCS maintained that the continued employment of Mr Awan would have caused operational difficulties. ICTS argued that wanting employees to attend work and carry out their work was a legitimate aim and that terminating the employment of those with no prospect of being able to do so was necessary. The ET agreed.

The EAT, however, disagreed with the ET, holding that to allow ICTS to dismiss Mr Awan was contrary to the functioning and purpose of the long-term disability plan. The entitlement was not subject to limitations and there was no reference to an insurance policy. The EAT considered it proper to imply a contractual term providing 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”. This implied term was held to be clear and reasonable in the circumstances, limiting the operation of the contractual notice provisions where the entitlement to long-term disability payments expressly provided for would otherwise be frustrated.

The EAT noted that dismissal in breach of contract will not necessarily be unfair but the existence of an implied term preventing dismissal for incapacity is a very relevant factor. The case was remitted back to the ET.

All information in this update is intended for general guidance only and is not intended to be comprehensive, or to provide legal advice.