Implied terms and long term disability

In Awan v ICTS UK Limited it was found that a tribunal was wrong to rule that the employer had not breached an implied term of the contract of employment when dismissing an employee who was entitled to long term disability benefit.

Law

Contracts may include express or implied terms. Unsurprisingly, express terms are those that have been specifically agreed by the parties, usually in writing. Terms may also be implied so that the contract reflects the presumed intention of the parties.

Traditionally terms may be implied by custom, conduct, to make the contract operate properly, or where the term to be implied was so obvious that it went without saying that it was what the parties intended.  Implied terms are interpreted by reference to a reasonable individual in the position of the parties at the time the contract was entered into, with the relevant background facts. Implied terms cannot contradict express terms.

Facts

Mr Awan was employed by American Airlines (‘AA’) in 1992. His contract contained contractual sick pay, long-term disability benefits, and the right for his employer to dismiss on notice. In 2012 he was signed off work, suffering from depression and a couple of months later his employment contract was transferred to ICTS UK Limited (‘ICTS’). Following the transfer, ICTS changed insurance provider, which resulted in cover being denied in respect of Mr Awan’s long-term disability payments. ICTS opted to pay this for a time, until in 2014 it terminated Mr Awan’s employment on grounds of capability.

Mr Awan brought his claim on grounds of unfair dismissal and unlawful discrimination. It was not disputed that he was disabled, nor that his dismissal arose as a result of that disability.

Decision and comment

The EAT reversed the decision of the tribunal, which had found that ICTS had acted reasonably, and that the dismissal was a proportionate means of achieving a legitimate aim.

The EAT found that there was an implied term which operated to limit the express contractual right to terminate on notice, where doing so would frustrate the contractual entitlement to long-term disability benefits. ICTS had dismissed Mr Awan because he was on long term sickness absence, and in so doing had denied Mr Awan the precise benefits that the contract had intended to provide.

The case highlights that employers ought to be wary of dismissing employees who are claiming contractual long term disability benefits. While encountered less frequently in practice, where an employer intends to grant such benefits consider the following:

• Incorporate the relevant insurance policy into the employment contract to limit the employer’s obligation to continue payments in the event that the policy stops, or reduces, pay outs.
• If there are limitations in the policy these should be brought to the employee’s attention and also incorporated.
• Finally, consider including a right to terminate on grounds of incapacity. Of course, it remains to be seen whether such a clause would be enforceable in light of Awan.