06 Dec 2018

In Awan v ICTS UK Ltd (UKEAT/0087/18), the Employment Appeal Tribunal had to decide whether dismissing a disabled employee who was on long-term disability benefits was in breach of an implied contractual term.

Facts

Mr Awan started employment with American Airlines as a security agent at Heathrow Airport on 11 April 1992. His contract of employment stated that he was entitled to 26 weeks' full sick pay. After that, if he was still on sick leave, he would benefit from a long-term disability benefit plan that would pay two-thirds of his basic annual salary (less any State benefits) until his return to work, retirement or death. Employees had to remain in employment in order to receive payments under the plan. Mr Awan's contract also stated that his employer could dismiss him on notice.

Mr Awan was signed off sick with depression in October 2012. American Airlines outsourced its security department to ICTS UK Ltd (ICTS) on 1 December 2012 and Mr Awan's employment was transferred under TUPE to ICTS. ICTS used a new insurer to provide long-term disability cover and the new insurer refused to accept liability for employees such as Mr Awan who were off sick when the policy started. The old insurer refused to accept liability because its contract was with American Airlines and Mr Awan was no longer employed by them, however it agreed to cover Mr Awan as a goodwill gesture until September 2014. ICTS told Mr Awan that it would make equivalent monthly payments until the situation was clarified on a without prejudice basis and without admission of liability.

Mr Awan remained off sick until ICTS terminated his employment on 28 November 2014 following a capability meeting. By that time he had been off sick for over two years and there was no likelihood of him returning within a reasonable period. The parties had not been able to agree on any adjustments that might have enabled him to return to work. He was paid 12 weeks' salary in lieu of notice. He brought employment tribunal (ET) proceedings claiming that his dismissal while he was entitled to long-term disability benefits was unfair and was also discrimination arising from his disability.

Employment tribunal decision

The ET held that ICTS was contractually bound to pay Mr Awan long-term disability benefits while he was still an employee. However, there was no implied term preventing ICTS from dismissing him for incapability while he was entitled to receive such benefits. There was an express term in the contract allowing ICTS to dismiss him and an implied term cannot restrict the operation of an express term. Further, ICTS had acted reasonably in dismissing Mr Awan for incapacity so his dismissal was fair. His dismissal was a proportionate means of achieving a legitimate aim so his discrimination claim did not succeed. Mr Awan appealed, arguing that there was an implied term in his contract that ICTS would not dismiss his for incapability while he was receiving long-term disability benefits.

Employment Appeal Tribunal decision

The Employment Appeal Tribunal (EAT) allowed the appeal and held that ICTS had acted in breach of an implied term of the contract in dismissing Mr Awan. A term should be implied into his contract that once he had become entitled to payment of disability income under the long-term disability plan, ICTS would not dismiss him on the grounds of his continuing incapacity to work.

Mr Awan's contract did not state that receipt of the benefits was subject to the rules of the scheme. The obligation on ICTS to pay benefits therefore applied whether or not the insurer paid out under the policy. It was contrary to the functioning of the plan and to its purpose to allow the employer to exercise a contractual power to dismiss so as to deny the employee the benefits that the plan envisaged would be paid.

The questions as to whether Mr Awan's dismissal was fair or unfair and whether it was justified were remitted to a fresh ET. 

Comment

Where an employee has a contractual right to receive disability or PHI benefits, the employer will not normally be able to exercise a termination clause that expressly reserves the right to terminate for incapacity. However, case law has confirmed that the employer is able to terminate the contract in a limited range of circumstances, such as gross misconduct justifying summary dismissal, repudiatory breach by the employee or redundancy.

Employers with similar schemes should ensure that their contracts of employment state clearly that entitlement to disability benefits is subject to the rules of the insurance policy, and is conditional on the insurer paying out benefits to the employer. The EAT pointed out that contracts without these limitations were common in the 1980s and 1990s so it would be sensible to check older contracts particularly carefully.

In addition, any employer involved in a TUPE transfer should seek clarity from insurers as to what will happen to employees who are either off sick and entitled to long-term disability benefits or will be entitled to such benefits at a future date if they remain unfit for work.