Lloyd v BCQ Group Ltd
Mr Lloyd was employed by BCQ Group Ltd from 1978. In May 2007, he suffered a back injury in an accident. He returned to work briefly, but was then absent due to ill health until his dismissal in May 2011.
Mr Lloyd had the benefit of permanent health insurance (PHI), but his contract of employment did not refer to the PHI benefit and contained an “entire agreement” clause (ie a clause stating that the contract represents the entire agreement between the parties).
A PHI claim was submitted on behalf of Mr Lloyd and payments were made. However, in August 2010, BCQ negotiated a lump-sum cash settlement of £38,718, which it paid to Mr Lloyd.
In March 2010, Mr Lloyd informed BCQ that he considered it unlikely that he would be able to return. BCQ consulted with Mr Lloyd about whether or not he would be able to return to work and, in November 2010, informed him of their decision to dismiss due to the length of his absence and the absence of any prospect of a return to work.
Mr Lloyd brought claims of age discrimination, unfair dismissal and breach of contract, claiming that he was entitled to money under the PHI scheme and to accrued holiday pay.
Mr Lloyd claimed that there was an implied term in his contract of employment that BCQ would not terminate his employment as a means to remove his entitlement to PHI benefit. The tribunal rejected all of his claims and he appealed to the EAT.
The EAT dismissed the appeal. There could be no implied term in Mr Lloyd’s contract that he would not be dismissed while in receipt of PHI benefits. Such a term would have been contrary to the express terms of his contract of employment, which post-dated the introduction of the PHI benefit, permitted dismissal for absence due to illness, and stated that it contained all the terms of the contract.
The EAT concluded that, in any event, the implied term would only apply where dismissal was without reasonable and proper cause, whereas here dismissal was for good cause due to the length of absence and lack of any prospect of return. The EAT concluded that in any event Mr Lloyd had suffered no loss as the amount paid for cancellation of the PHI cover had been paid over to Mr Lloyd.
The holiday pay claim was remitted to the employment tribunal.
PHI is one of the most valuable benefits that an employer can provide to its employees. However, it has its risks, primarily because entitlement to PHI potentially has a profound effect on the employer’s ability to terminate the employment of an employee on long-term sickness absence.
A fundamental term of most PHI schemes is that employees must remain in employment to receive the benefit. Termination of employment will, therefore, usually result in termination of payment of the benefit to the employee. Case law has therefore established that an employer may terminate the employment of an employee entitled to PHI benefits only if there is an express term in the contract of employment.
Otherwise, an employee could be entitled to claim damages for breach of contract for being wrongfully deprived of benefits under the scheme as well as unfair dismissal.
This EAT decision is potentially very significant for employers managing long-term sickness absence. It makes it clear that a duty not to dismiss the employee if so doing would disentitle the employee to claim benefits or further benefits will not be implied into the contract if this would conflict with an express clause permitting termination. This gives more scope for terminating employment where an employee has been off sick for a lengthy period.
This is particularly important as, following the Court of Appeal decision in NHS Leeds v Larner, employees on PHI may continue to accrue holiday, which could lead to a significant liability building up over the time the employee remains on PHI.
However, caution is still advisable in individual cases. Employers should consider the wording of the employee’s contract of employment, the rules of the policy and whether or not their actions could be construed as wrongfully depriving the individual of the possibility of cover under the scheme.
Employers that provide employees with PHI benefits should ensure that the contract contains an express term permitting dismissal in the case of long-term sickness absence and an entire agreement clause.
Benedict Gorner, partner, DLA Piper
Further information from XpertHR