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Posted 19 November 2012
by Martin Laver

Dismissal for ill-health capability and Permanent Health Insurance

It has long been held that in ill-health capability situations, where Permanent Health Insurance was a contractual benefit provided to the employee, there is an implied term that the employer could not dismiss the employee without being in breach of the contract. This caused a number of problems in respect of payroll and holiday pay issues.

The recent case of Lloyd –v- BCQ Ltd has changed that position for some employers.

The essence of the decision is that if an employer has a contractual right to dismiss after a certain length of time absent ill, then the employer will not be obliged to retain an employee simply because they are receiving a PHI benefit.  It was also relevant in this case that the employee did not have a contractual right to the PHI benefit.

Reading between the lines then, employees who have a contractual right to PHI payments and/or no term in their contract expressly providing for their dismissal after a defined absence for illness will have an better chance of persuading an Employment Tribunal to imply a term into their contract preventing their employer from dismissing them.  This is likely to create a situation where some employees receiving PHI cover are protected from dismissal and some are not.

For those employers who provide PHI cover, the case presents an opportune moment to review their contracts.

The full transcript of the case can be found here.

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About the author

Martin Laver

Partner and Solicitor

Partner in the commercial litigation team specialising in disputed trusts and Wills