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Can an employer dismiss an employee for capability reasons?

This article was published on January 11th, 2019

In this blog post, we explore whether an employer can dismiss an employee for capability reasons when they are contractually entitled to long term disability benefits.

The Employment Appeal Tribunal in Awan v ICTS says no.

Mr Awan went on long term sick leave. After six months’ full pay, he was contractually entitled to a disability benefit plan which paid two-thirds of his pay until he returned to work, retired or died. His contract did not refer to any insurance policy or scheme terms. The insurer refused to pay due to the employee’s previous TUPE transfer from another company with a different insurer. The employee was dismissed for capability reasons before the issues were resolved.

The employment tribunal found that the employee had been fairly dismissed. There was an express term in his contract that allowed the employer to dismiss on notice. No implied term – such as one not to dismiss whilst entitled to long term benefit payments – could override that express term.

The EAT disagreed. Mr Awan’s contract entitled him to benefit payments until he returned to work, retired or died, not until he was dismissed on capability grounds. It would completely undermine the purpose of the payment plan if the employer could dismiss the employee and deny him the benefit. The EAT said there was an implied contractual term not to dismiss the employee while he was entitled to long term benefits that required his continued employment. By dismissing him, the employer had breached that term, and therefore his contract.

In this case, the employer’s fatal error was that the employee’s contract did not refer to any insurance policy. The employer was obliged to pay regardless of whether an insurer covered the costs. Employers should link any PHI or long-term disability benefit plans to specific insurance policies. Limitations under the policy and insurer rules should be brought to an employee’s attention.

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