firm news

Andrew Whiteaker
Andrew Whiteaker,
Permanent health insurance and dismissing absentee employees
27 November 2018

A recent case in the Employment Appeal Tribunal has emphasised the care that an employer should take when considering the potential dismissal of employees absent on the grounds of long-term ill health where they have the benefit of a permanent health insurance scheme.

Capability dismissals

Incapability is one of the 5 potentially fair reasons to dismiss an employee recognised by the Employment Rights Act 1996. When an employee has been absent for an extended period of time, and medical advice suggests that there is no realistic prospect of an employee returning in the short to medium term, an employer may potentially fairly dismiss them provided that it follows a fair process.

If the employee in question has a disability as defined by the Equality Act 2010, the employer will have additional obligations not to treat the employee less favourably on the grounds of their disability, and also to consider reasonable adjustments to their working conditions to alleviate any disadvantage they may be put to as a result of their disability. However, having a disability is not an absolute bar to terminating a disabled employee’s employment on the grounds of their ill health provided that medical advice is sought and a fair process is followed.

Permanent health insurance

Matters may be complicated further where the employer provides the benefit of a permanent health insurance scheme, under which employees are entitled to receive a proportion of their salary while unable to work due to injury or ill health. Such schemes may provide an income for a fixed number of years or until an employee reaches retirement age. The dismissal of an absent employee enjoying the benefit of such a scheme may result in the loss of those benefits, so would such a dismissal be unlawful?

Awan v ICTS UK Ltd

In the above case A was employed as an International Security Coordinator under a contract which entitled him to both contractual sick pay and the benefit of a permanent health insurance scheme. He commenced a period of ill health on 14 October 2012, and his employment was transferred to a new employer in December 2012.

His absence continued, and he received payments under the permanent health insurance scheme until November 2014. As it did not prove possible to agree adjustments which may have enabled his return to work, he was dismissed on 28 November 2014 after his new employer concluded that he was permanently incapable of doing his job.

A then issued proceedings against his employer for unfair dismissal and for discrimination arising from his disability under section15 Equality Act 2010. He argued that there was an implied term in his contract of employment that he would not be dismissed in a way which deprived him from his insured benefit, and that this decision was also discriminatory as he was dismissed due to his ill health, which in turn arose from his disability. 

His claim was initially unsuccessful at Tribunal, it holding that the employer had acted reasonably in dismissing him for a reason relating to capability, and that his dismissal was a proportionate means of achieving a legitimate aim for the purpose of section15 Equality Act 2010.

He appealed to the Employment Appeal Tribunal, which held that it would be contrary to the purpose of the permanent health insurance scheme for the employer to be entitled to exercise its contractual power to dismiss A and deny him the benefits the plan was envisaged to provide. A term therefore could be implied into A’s contract restricting the employer’s right to dismiss him on the grounds of his continuing incapacity when he was receiving benefits under the scheme. As the Tribunal had wrongly concluded that a term should not be implied into the contract, its finding on the fairness of the dismissal and the discrimination claim could not stand and the matter was remitted to the Tribunal for reconsideration.


This finding does not represent new law but it is an important reminder of the restriction on the ability to dismiss employees enjoying the benefit of a permanent health insurance scheme. There are limited circumstances in which such a dismissal will be justifiable, and such a mistake can be very expensive if an employer is ordered to compensate the employee for the insurance payments they lose as a result of their dismissal.

For more information about dismissal issues please contact the Boyes Turner Employment team at [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

award winning law firm

Boyes Turner are proud to have received the following awards and recognition.