Quick guide to incapacity dismissals

Sickness absence can be costly to employers, but so too can litigation if organisations fail to consider the legal issues involved. Employment law solicitor Victoria Othen explains.

A 2008 review revealed that the annual cost of sickness absence to the British economy was around £100 billion and that 175 million working days were lost to illness. So concluded Dame Carol Black (national director for health and work) whose report led to the introduction of fit notes on 6 April 2010.

Business efficiency is reason enough for employers to adopt robust procedures when dealing with sickness problems. Clear notification and return-to-work policies are effective means of discouraging recurring or lengthy absences. More employers now refuse to pay sick pay for the first three days of absence in a (sometimes successful) effort to reduce the frequency of short-term absences.

However, without any relevant contractual authority, this may not be an available option. Rewarding employees for their attendance rather than concentrating on absence can be a more effective means of skinning the same cat (provided that such a practice complies with equality legislation).

This article focuses on the law concerning so-called “incapacity dismissals”. It attempts to summarise the key legal issues on which employers should focus to avoid adding the cost of litigation to its sickness absence losses.

Fair reason

All dismissals must be effected for a potentially fair reason under s.98 of the Employment Rights Act 1996 (ERA). For sickness absence, that reason could be any one of the following:

  • Conduct (s.98(2)(b)) in cases of persistent unauthorised absence or where illness has been faked.
  • Capability (s.98(2)(a)) in cases where lengthy or frequent absences have affected the employee’s ability to do their job.
  • Some other substantial reason (SOSR) “of a kind such as to justify the dismissal of an employee holding the position which that employee held” (s.98(1)(b)). This reason should be considered where absence is unreasonably affecting business efficiency.

Fair procedure

Section 98(4) of the ERA states that a fair dismissal takes place when “the employer acted reasonably … in treating [the reason for dismissal] as a sufficient reason for dismissing the employee”. At the very least, this will involve a reasonable investigation of all relevant circumstances and a discussion with the employee who is given the opportunity to have his/her say.

Acas code

The Acas code on discipline and grievance expressly applies to misconduct and poor performance issues but may also apply to other dismissals in some circumstances (although not to redundancy situations or fixed-term contract expiry). Although official Acas guidance seems to suggest otherwise, recent case law indicates that the code should apply to non-disciplinary situations.

In the 2010 case of Cummings v Siemens Communications Ltd, an employment tribunal held that it should apply in a SOSR dismissal. Even if this case is successfully overturned, the practical reality for employers is that they may not know, at the outset of any investigation, what the causal reason for the absence(s) is/are. As such, observance of the code is advisable from the outset.

Qualifying service

Employers may be tempted to cut corners with employees who have accrued less than two year’s continuous service on the assumption that they will be unable to bring a claim. This is a risky approach. Many rights (including some that relate to unfair dismissal) accrue to employees from the commencement of their employment. Until the reason for any absence has been established by way of a fair and reasonable investigation, hasty decisions should be avoided.

Capability dismissals

When asked to decide whether a capability dismissal is fair, an employment tribunal will consider the following key points:

  • The nature of the employee’s illness.
  • The prospects for that employee returning to work.
  • The treatment of other employees in the same or similar circumstances.
  • The need for the employer’s business to cover the work of that employee.
  • The employee’s length of service.
  • Whether the employer considered the availability of any other more suitable employment.
  • Whether the illness/injury resulted from the conduct of the employer.

This list is non-exhaustive. The ultimate question that it will ask is whether it was reasonable to expect the employer to keep the employee’s job open for any longer, as in the case Hart v AR Marshall & Sons (Bulwell) Ltd [1977] IRLR 51.

Medical evidence

Medical evidence will be of great importance but it must be remembered that:

  • Contracts of employment should be reviewed to assess the extent to which employers are entitled to obtain medical evidence or to commission medical reports about the employee concerned.
  • However clear the evidence, it should always be discussed with the employee.
  • A specialist/expert report should be preferred over general opinion.
  • The decision to dismiss is ultimately a managerial, not a medical, one.

Permanent health insurance

Particular care should be taken where an employee is covered by a policy of permanent health insurance (PHI). Where (as is usually the case) the PHI policy provides that benefits will only be paid in respect of employees who continue to be employed, the courts will imply a term into the employment contract to the effect that his/her employment will not be terminated while he is incapacitated from work unless on it is on certain specific grounds:

A dismissal that falls outside these categories and removes an employee’s entitlement to the PHI policy may give rise to a claim for breach of contract. Damages will be assessed by reference to the total benefit lost under the PHI policy. Given that some PHI policies provide for benefits to continue throughout disability until normal retirement age, they could be substantial.

Disability discrimination

Employers must be aware of the link between sickness absence and disability. If a worker is classed as disabled under s.6 of the Equality Act 2010 (a determination that may require careful investigation) he/she enjoys the following rights without any period of qualifying service:

  • Protection from direct and indirect discrimination.
  • Protection from discrimination arising from his/her disability.
  • The right to reasonable workplace adjustments to help to overcome any “substantial disadvantage”.
  • Protection from victimisation and harassment.

It is always advisable to seek legal advice before dismissing a disabled employee.

Pregnant women

Periods of sickness absence are common during pregnancy. Dismissing a worker or subjecting her to any detriment concerning pregnancy/maternity-related illness that occurs during her “protected period” is unlawful under assorted legislation. A “detriment” would include issuing a warning under an employer’s sickness absence procedure.

Victoria Othen has been an employment law solicitor for nearly 14 years and has spent the majority of this time in specialist private practice. She is also an experienced writer and trainer in employment law and HR matters.

XpertHR provides a model policy on long-term sickness absence.

This article was originally published on 15 July 2011. It was updated on 23 October 2015 by Ashok Kanani, employment law editor.

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