Carla Benest

Carla Benest


Jessica Roland

Jessica Roland


MOrsel: The price of protection of permanent health insurance schemes in employment contracts

[Dynamic date]

01 April 2019

Long-term sickness or incapacity benefits, such as permanent health insurance schemes, form an important part of some employees' benefits. Employers should, however, be mindful when providing such benefits that the effect may be to limit the termination options available when the employee is on long-term sickness and in receipt of PHI payments.

The recent case of Awan v ICTS UK Ltd [2018] EAT held that the whole purpose of permanent health insurance or other disability schemes would be defeated if entitlements could be ended by dismissing the employee for incapability. Where an employment contract is inherently contradictory between the provision of benefits and dismissal, it is likely to be appropriate to imply a term to the effect that, once the employee had become entitled to payment of PHI income under the terms of a relevant plan, the employer would not dismiss him on capability grounds.

This will not stop an employer ceasing salary payments if the policy allows for it, or managing the employee's absence in the usual way. Even if the employee is unpaid for the duration of their absence, the employer may still have obligations to monitor the absence, stay in touch with the employee, seek and pay for medical advice and take reasonable steps to facilitate the employee's return.

The Awan case will also not necessarily prevent a fair dismissal in every scenario where the employee is in receipt of PHI benefits. For example, in ICTS UK Ltd v Visram [2016] EAT (another UK case also involving the same respondent), it was concluded that whilst the breach of the employee's right to long-term disability benefits and implied right not to be dismissed are relevant factors, they do not automatically make a dismissal unfair. Further, it was confirmed in Awan that a dismissal for a reason other than incapability – for example, a genuine redundancy situation or misconduct concern – can still be lawful.

Whilst the above cases are not directly binding in Guernsey or Jersey, we expect that they would be considered highly persuasive by the local employment tribunals and being aware of the dangers will help employers minimise risk of an adverse finding.

How should an employer protect itself?

Employers should not be put off providing sickness or incapacity benefits as they can provide essential support and peace of mind for many employees.

Care should, however, be taken about the terms upon which such benefits are offered; employers should ensure that schemes are not tied to ongoing employment, that any contractual commitment is limited to what the insurer agrees to pay under the policy, and that significant limitations under the policy are drawn to the employee's attention.

For more information in respect of sickness or incapacity benefits, please get in touch with a member of the Guernsey or Jersey employment team.