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Is it safe to dismiss an employee who is receiving long-term disability benefits?

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The EAT has dealt a blow to employers, confirming that the purpose of permanent health insurance and similar schemes would be defeated if an employer could end entitlements under this type of scheme by dismissing the employee on grounds of capability.

The case in question concerned an employee who had been off sick for two years with depression. After 26 weeks’ absence, he had become entitled to, and received, payments equivalent to two thirds of his annual basic salary through a disability benefits plan. However, two years later, the employee was dismissed. He brought claims of unfair dismissal and discrimination arising from a disability. The employer conceded that, on the face of it, the dismissal was because of something arising from his disability but argued that this discrimination was objectively justified. It disputed that the dismissal was unfair.

The tribunal found in the employer’s favour but, on appeal, the EAT reviewed the previous cases on this issue, which have generally taken a similar approach: in essence that an employer should not dismiss for a spurious reason, or indeed no reason at all, or for the purpose of ending an employee’s sick pay entitlement. If this were permitted the purpose of the permanent health insurance scheme would be subverted. However, these cases did recognise that it would be possible to dismiss for gross misconduct or potentially for redundancy.

In this case, the employee’s contract included an express right to terminate at any time, with notice. The EAT pointed out that this was inherently contradictory to the employee’s entitlement to long-term disability benefit. It therefore held that there was an implied term to the effect that, once an employee had become entitled to receive benefits under the plan, the employer would not dismiss him or her on grounds of incapacity. The question of whether the employee’s dismissal was fair or unfair had to be assessed with that express term in mind, as did the question of whether any disability-related discrimination could be objectively justified. The case was therefore sent back to a fresh tribunal to consider these questions against the background of this implied term.

The EAT left open the possibility that an employer may have a right to dismiss on capability grounds depending on the wording of the particular contract but did cast doubt on that possibility, particularly in light of the parties’ unequal bargaining power in an employment relationship.

If you offer a permanent health insurance scheme to your employees, you should be aware that your ability to dismiss an employee who is receiving benefits under the scheme is likely to be significantly restricted.