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Dismissal for capability

The question of when an employee with a long-term disability related absence can be dismissed for capability is always a difficult one for employers and involves a careful balancing act between weighing up the needs of the business against an employee’s rights to be treated fairly. For example, is it a fair or proportionate means of achieving a legitimate aim for an employer to dismiss an employee by reason of permanent incapability, at a time when entitlement to long-term disability benefits had accrued or was accruing?

No, held the Employment Appeal Tribunal (EAT) in Mr H Awan v ICTS UK Ltd UKEAT/0087/18/RN.

Factual background to the case

The employee had been employed by American Airlines as a security agent at Heathrow airport since April 1992. His contract of employment gave him entitlement to both contractual sick pay and the benefit of a generous long-term disability benefit plan, which was provided by a third party (an insurance company). The employee had to be in employment in order to benefit from the plan. The insurance policy that set out the terms on which the plan was available to employees was not incorporated into the contract of employment or brought to the attention of employees.  

In 2012, American Airlines outsourced its security services to ICTS UK Limited.   Accordingly, the employee’s contractual terms and conditions (including the plan) were transferred under TUPE regulations. Following the transfer, ICTS moved to a different insurance provider; as a result of this change, the employee was refused any further payments under the plan. After a two-year sickness period, there was no indication that a return to work was foreseeable in the near future. Consequently, ICTS terminated his employment on grounds of medical capability. The employee brought a claim for unfair dismissal and a discrimination claim. 

Employment Tribunal decision

The Employment Tribunal’s finding was as follows:

  • ICTS was contractually obliged to pay the employee long-term disability benefits but only if he was employed;
  • There were no implied terms preventing ICTS from dismissing the employee for incapacity while he was entitled to such benefits;
  • The continued employment of the employee would have caused ICTS operational difficulties;
  • The employee’s dismissal was a proportionate means of achieving a legitimate aim, so there was no unlawful disability discrimination.

Employment Appeal Tribunal

On a proper construction of the contract, the EAT found that ICTS was prevented from dismissing the employee for incapacity while he was entitled to long-term disability benefits. The exact wording of the contract was that once the benefit became payable, it was payable until any of “a return to work, retirement or death”. This clause and the accompanying handbook made no reference to termination as a result of incapacity as one of the ways in which payment could be stopped. ICTS was under an obligation to pay the benefits under the plan, regardless of how it was governed or funded. This is particularly notable, as the respondent would have been personally liable for any ongoing payments due to the insurer’s refusal to make further payments.

The employee’s contract of employment contained express clauses that enabled ICTS to terminate his contact at any time by giving him requisite notice, which conflictingly prevented the employee from benefiting from the plan. 

The EAT considered a number of cases in which an employer’s power to terminate an employee’s contract was restricted if termination would deprive the employee of certain rights conferred under a long-term disability scheme. The reasoning that stemmed from the deliberated cases was that the whole purpose of the scheme would be defeated if the employer could bring an end to these entitlements by dismissing employees when it is clear they become unfit for work and have accrued such benefits.

The EAT concluded that the dismissal was in breach of contract.  ICTS made a clear contractual promise to cater for long-term incapacity for work, conferring valuable disability benefits on employees according to an established scheme. Once the employee had become disabled, he automatically became entitled to the benefits under the plan. ICTS did not have the right to dismiss him for continuing incapacity to work.

Subsequently, the appeal was allowed on the principle contention of this case (save as to the ‘operational difficulties’ argument).  The matter was remitted to a fresh Employment Tribunal to consider at a re-hearing.

Conclusion

This case suggests it would not be open to the employer to dismiss an employee for a specious or arbitrary reason, or for the specific purpose of defeating an entitlement to an income replacement insurance scheme. To permit such dismissals would simply sabotage the benefit of such a scheme and run contrary to the entire purpose of that arrangement. 

The lessons for employers in this instance are twofold. In the first instance, they should think carefully of the legal, practical and financial implications of long-term disability benefits often provided by a third-party insurance policy. In this case, the primary issue was the poor wording of the contract and the lack of specific wording to counter situations in which the insurance funding was no longer in place. An example of how this could have been remedied would have been to incorporate the terms and conditions of the insurance policy into the contract of employment, to limit the employer’s liability.

In the larger picture, it is also important for employers to ensure that decisions to dismiss are for genuine reasons and not simply to avoid incurring costs of a contractually agreed benefit as, if the tribunal finds this to be the case, it is unlikely that they will find in the employer’s favour.

For more information on this topic or any other employment law related issues, please contact our employment law team by emailing Kay Holland by emailing [email protected] or by calling 0117 904 7720.

Posted on Oct 15th, 2019 by Lyons Davidson

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