For many years, permanent health insurance (PHI) has been a standard component in the portfolio of benefits given to middle and senior executives. The cover usually provides that once the employee has been off sick for six months or more, the insurance will provide a percentage of salary as long as the employee is unable to work. Understandably, there is usually be a medical examination of the employee applying for benefits, which may be refused if the insurer believes the employee is not sufficiently incapacitated. Difficulties for employers arise, however, in several areas.
Employers should be careful about how they express PHI benefits in contracts of employment. The provision of the benefit must be stated as subject to rules of the scheme, to avoid inadvertently giving the employee a contractual entitlement to a percentage of salary if the employee is off sick for the requisite period.
Breach of contract
In a recent case it was held that there was an implied term in the contract of employment that an employer will not terminate employment where an employee is likely to be eligible for PHI, in circumstances where such a termination of employment will dis-entitle them from that benefit. In most cases, PHI cover stipulates that the employee must remain an employee for the duration of the cover. Therefore, in the absence of an express term allowing the employer to override the implied duty to keep the employee in employment, it could be difficult to justify a dismissal for sickness. Not only could the dismissal be unfair, but the employer may be liable in damages for lost PHI benefits.
Termination of benefit
A further problem arises when the employee recovers after having spent some time in receipt of PHI benefits, while technically remaining an employee. Imagine the situation: a middle ranking executive has been off sick for, say, three years but suddenly notifies you that his PHI benefits are ceasing and that he is ready to return to work. In that three-year period, almost everything could have changed - and usually has. It may be difficult at that stage to fit the employee back into the organisation and the employer then faces the task of agreeing terms of settlement for the employee's termination, or having difficult discussions with managers about redeployment. This scenario could be avoided if, in the contract, there is a clause allowing