Permanent Health Insurance (PHI) is generally a contractual arrangement under which an employee will be entitled to a certain level of pay, usually a percentage of their normal pay, in the event that they are unable to attend work due to ill-health for a period of time. In many cases the employee is entitled to the payment in perpetuity, and dismissing an employee who benefits from the right to PHI can lead to significant claims if the dismissal would prevent the employee from receiving the benefit or continuing to do so.
In a TUPE situation, the contractual rights of the employees being transferred are protected, and they will (with limited exceptions) have the same terms and conditions that they had with their previous employer.
In the recent case of ICTS (UK) Ltd v Visram, Mr Visram had a contract that provided him with PHI benefits. Under the scheme he would receive those benefits after 26 weeks of absence.
In 2012, Mr Visram went off sick with work-related stress and depression. During his absence a TUPE transfer took place. Mr Visram did not receive his entitlements under the PHI scheme after being absent for 26 weeks and raised a grievance on those grounds.
His new employer then arranged for the PHI insurer to provide him with benefits, but only for a 12 month period. Mr Visram’s employment was then terminated on capability grounds due to his prolonged absence.
Mr Visram brought claims of unfair dismissal and disability discrimination, both of which were successful. In relation to unfair dismissal, the Employment Tribunal (ET) found that Mr Visram’s contractual right to the PHI benefits transferred with him to his new employer.
The ET also found that there was an implied term in his contract that his employment would not be terminated if that would result in him losing the PHI benefits. That point has been the subject of a number of cases and there have been decisions to the effect that capability dismissals that deprive an employee of PHI benefits can constitute a breach of contract. It is possible to include a term in the contract allowing a dismissal even where it would mean the loss of PHI benefits, but there was no such clause in Mr Visram’s contract.
In relation to disability discrimination, Mr Visram’s employer was unable to show that the decision to dismiss Mr Visram was justified. His employer attempted to argue that there was a need to remove him from the payroll system, but no evidence was presented to support that contention.
Mr Visram’s employer appealed but the Employment Appeal Tribunal rejected the appeal on both counts. In a nutshell, Mr Visram’s contractual entitlements were an important factor which the ET was entitled to consider when coming to its decision.
This case highlights a couple of issues. Firstly it is a reminder that employees’ contractual rights will transfer in a TUPE situation, so it is critical to identify what those rights are and to honour them.
Secondly, caution needs to be exercised when considering dismissing an employee with contractual PHI benefits. Depending on the wording of the contract, it may be risky to dismiss an employee for long-term absence, even where doing so would likely be reasonable in the absence of a PHI scheme.
If you have any questions on any of the issues raised in the above article please contact Seanpaul McCahill.