In the recent case of ICTS (UK) Ltd v. Visram, the Employment Appeal Tribunal (EAT) held that an employer was contractually obliged to provide an employee with long-term disability benefits until he was able to return to his old job, and not just until he was able to work again in any capacity. As the employee was found to have been unfairly dismissed, and discriminated against for reasons related to his disability, and was unlikely to be able to return to his old job due to his ill health, the employer was liable to pay compensation equivalent to the benefits the employee would have been paid until his death or retirement. Although this was specific to the facts of this case, in which there had been a TUPE transfer, and in which the insurer had refused to provide the benefits in question, the case nevertheless is a reminder to employers of the potential consequences of dismissing an employee whilst they are entitled to long-term disability benefits under an employer's permanent health insurance scheme.

Background

Mr Visram began work for American Airlines in 1992. His contract of employment included a long-term disability benefits plan (the Plan) funded by an insurance policy (the Policy). The Plan provided that benefits would start after 26 weeks of absence and continue until the "earlier date of your return to work, death or retirement". The Policy stated that an employee would be entitled to benefit under the Policy for as long as he was "incapacitated by an illness or injury which prevents him from performing his own occupation". "His own occupation" was defined as "the essential duties required of the Insured Member in his occupation" immediately before commencing sick leave.

In October 2012, Mr Visram went on sick leave and two months later his employment transferred to ICTS (UK) Limited (ICTS) under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). After 26 weeks' absence, Mr Visram expected to receive the long-term disability benefits set out in the Plan. This did not happen and, in June 2013, he raised a grievance. This prompted negotiations between ICTS and the insurer with the outcome that the insurer agreed to pay the benefits for a year, until the end of September 2014. After the end of that period, Mr Visram was dismissed on the grounds of capability.

Relevant legislation

Employees who transfer to a new employer under TUPE do so on their existing terms of employment, including any terms relating to benefits. However, while the right to benefit from a particular insurance scheme transfers, the insurance policy does not automatically transfer to the new employer – transferee employers must either renegotiate the terms of the policy with the provider or set up a new policy, potentially with a different provider.

In this case, it is not clear why the insurer only agreed to pay benefits to Mr Visram for a year, but it is possible that ICTS had been unable to negotiate a policy that was identical to the Policy post transfer.

ET and EAT decisions

Mr Visram brought successful claims for unfair dismissal and discrimination arising from disability. At the remedy hearing, the Employment Tribunal (ET) awarded compensation to Mr Visram on the basis that the benefits to which he would have been entitled under the Plan would have continued until death or retirement. ICTS appealed.

The EAT dismissed the appeal. ICTS argued that "return to work" meant a return to any suitable work that Mr Visram was able to carry out and that Mr Visram's entitlement to benefits ceased on him being able to carry out any full-time employment. The EAT dismissed these arguments. Based on the wording of the insurance policy, as set out above, the EAT held that the ET was entitled to find that "return to work" meant a return to the work performed when going absent due to illness and was therefore entitled to award the compensation to Mr Visram.

Permanent health insurance benefits

Employers often offer permanent health insurance (also known as income protection insurance) as an employee benefit, funded by an insurance policy with a third-party insurer. The insurance policy's definition of incapacity is key in determining whether an employee is entitled to receive any benefits under the policy. Some policies will pay out if the employee is unable to perform their normal occupation, whereas others will only pay out if the employee is unable to work at all. In addition, some policies require the individual to remain an employee in order to receive benefits.

Comment

When it appears that an employee will not be able to return to work, an employer should explore all of the options and not just proceed to dismissal on capability grounds. As with all dismissals, employers must make sure that they have a fair reason to dismiss, that they have followed a fair procedure and that the dismissal is fair in all the circumstances.

As is made clear in this case, employers should also check the wording of any permanent health insurance policy very carefully before deciding to dismiss an employee on long-term sick leave. Dismissing an employee before establishing whether they would be entitled to benefits under a permanent health insurance policy, or whilst they are in receipt of benefits, could lead to the employee bringing a successful claim for compensation equivalent to the benefits to which they were entitled.