The Employment Appeal Tribunal’s decision in Awan v ICTS is a very important decision for employers who provide long-term disability benefits (such as those provided under a permanent health insurance scheme) to their employees. In this update, we detail the facts of the case and outline what it means for employers.

Facts

Mr Awan worked for American Airlines as a Security Agent at Heathrow Airport. He was later promoted to the position of International Security Co-ordinator. Under his employment contract, he was entitled to both contractual sick pay and the benefit of an insured long-term disability benefit plan (as a result of his employer’s group income protection policy). Any benefits he was entitled to under the plan would terminate if his employment ceased.

Mr Awan suffered from depression and took sick leave. He received contractual sick pay, and subsequently long-term disability payments. After his sick leave had started, American Airlines outsourced its security functions. As a result, Mr Awan’s employment (along with his employer’s obligations associated with his entitlement to long-term disability benefits) transferred to ICTS under TUPE.

Mr Awan remained off sick following the TUPE transfer and was eventually dismissed by ICTS by reason of capability. ICTS had concluded that he was permanently incapable of performing his role. At the time of his dismissal, Mr Awan was in receipt of long-term disability payments (although there had been some negotiations with the relevant insurers, given the TUPE transfer, and the employer was funding some of the payments).

Mr Awan brought claims before the employment tribunal, arguing that it was unfair and discriminatory to dismiss him whilst he was still entitled to long-term disability payments.

Tribunal Decision

Whilst Mr Awan was a disabled person for the purposes of the Equality Act 2010, the tribunal found that ICTS had acted reasonably in dismissing him by reason of capability and that his dismissal was a proportionate means of achieving a legitimate aim (meaning that there was no unlawful discrimination).

The legitimate aim was ensuring employees attended work and did the job they were employed to do. By the time of his dismissal, Mr Awan had been absent for two years without any improvement in his condition. There was also no indication that he could return to work with adjustments. The tribunal accepted that his continuing absence was causing, and would continue to cause, operational difficulties for his employer.

The tribunal rejected Mr Awan’s argument that there was an implied term in his employment contract restricting his employer’s ability to dismiss him when he was entitled to long-term disability payments.

Mr Awan appealed to the Employment Appeal Tribunal (EAT).

EAT Decision

The EAT held that a term could be implied into Mr Awan’s employment contract to provide that, once entitled to or in receipt of benefits under the long-term disability plan, he would not be dismissed by reason of his continuing incapacity for work. The implied term operated to limit the express contractual right to terminate on notice if it would frustrate his entitlement to long-term disability benefits.

Crucially, the EAT found that the whole purpose of the disability benefit scheme would be defeated if Mr Awan’s employer could end entitlement under the scheme by dismissing him when he became unfit for work.

The question of whether Mr Awan’s dismissal was fair and justified as a proportionate means of achieving a legitimate aim was remitted to be reconsidered by the tribunal.

Comment

Employers should tread extremely carefully before dismissing any employee who is, or may be, entitled to benefits under any long-term disability scheme (such as a permanent health insurance scheme).

Whilst the EAT accepted that terms should not be implied too readily, terms will be implied where appropriate. The EAT noted that Mr Awan’s employment contract (like employment contracts for other employees) was known to both parties to include the benefit of a disability insurance plan. This benefit could only work if employees entitled to receive these benefits, such as Mr Awan, remained in employment for the duration of their incapacity. Mr Awan’s employment contract was, therefore, inherently contradictory if it also provided for his employer to exercise a broad contractual power to dismiss him in order to deprive him of the benefits to which he was contractually entitled.

On a practical level, it is worth noting that Mr Awan’s employment contract entitled him to long-term disability benefits regardless of how the benefits were funded.

Employers should ensure that their employment contracts:

  • refer to the relevant insurance policy by name where appropriate, to limit exposure if the insurer pays out less or nothing at all under the relevant policy.
  • make it clear that refusal of cover by an insurer will discharge any duty the employer may have to pay under the scheme.
  • specifically include the right to terminate for incapacity notwithstanding any contractual entitlement to long-term disability benefits. However, such a termination provision may not be enforceable in practice in the light of the EAT’s decision in Mr Awan’s case.

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