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UK: Termination: employee’s dismissal while entitled to long-term disability benefits was in breach of an implied term

Mr Awan (A) was employed as a security agent for American Airlines. Under his contract, he was entitled to six months’ sick pay and if still on sick leave after that, to a long-term disability benefit plan (the Plan) which would pay two-thirds of his base annual salary until the earlier of his return to work, retirement or death. The policy provided that insured members were entitled to the Plan only if they remained in employment. When A was on sickness absence, his employment was TUPE transferred to ICTS UK Ltd and, as a result of the wording of the policy, the insurers said they were no longer liable to make benefit payments to A. ICTS was not able to source other insurance cover for A as he was already on sick leave. Subsequently, ICTS terminated A’s employment for capability reasons. He brought unfair dismissal and disability discrimination claims.

The employment tribunal dismissed the unfair dismissal and disability discrimination claims, but the EAT allowed A’s appeal. The EAT concluded that, on a proper construction of the contract, it was contrary to the purpose of the Plan for ICTS to dismiss A, and deny him the benefit payments under the Plan. The EAT therefore held that a term could be implied into the contract that “once the employee has become entitled to payment of disability income due under the long-term disability plan, the employer will not dismiss him on the grounds of his continuing incapacity to work”.

Employers can avoid liability in these circumstances if their employment contract provides that the payment of long-term disability benefits or PHI is conditional on payments being made by the insurer.
During a TUPE process, the new employer should seek to agree appropriate warranties and indemnities in relation to potential liabilities for long-term disability cover.

Awan v ICTS UK Ltd