Terminating an employee's contract due to long term sickness | Moorepay
January 1, 1970

Terminating an employee’s contract due to long term sickness

When an employee’s contract is terminated due to long term sickness, there is the potential for an unfair dismissal to arise.

We’re going to examine the following scenario:

What are the risks of terminating the contract of an employee on long term sickness absence before the employee’s entitlement under sick-pay and permanent health schemes has been exhausted?

Putting aside any potential claims for wrongful dismissal, breach of contract or disability discrimination, this blog considers just one of the complexities and circumstances in which an unfair dismissal may arise.

There is often a misunderstanding that it’s unfair to dismiss an employee who remains entitled to receive remuneration under the company’s sick-pay scheme. Likewise, there’s a misunderstanding that it’s fair to dismiss an employee once the rights under that scheme have been exhausted.

The existence of such a scheme is merely one of the factors to consider in the overall fairness of the dismissal. A scheme may indicate that the employer had envisaged the possibility of illnesses, at least for the length of time that the employee can recover under the scheme and may be taken to have implicitly indicated that he is able to cater for such absences. But a tribunal is not bound to make the assumption that any such an implication can be drawn from the existence of a sick-pay scheme, particularly if its terms are generous.

In general, such schemes are a financial provision and not a provision which is indicative of the amount of absence to which an employee is entitled if they are sick. Conversely, waiting until entitlement under such a scheme has been exhausted before dismissing may be held to be unfair, particularly if the decision to dismiss is taken in ignorance of up to date facts about the employee’s state of health and likelihood of returning to work.

What if appropriate notice is given?

In some cases, the dismissal of an employee in receipt of a benefit under a permanent health insurance scheme may constitute a breach of contract, even if the appropriate notice is given. It may also lead to a finding of unfair dismissal depending upon the circumstances and, perhaps more importantly, the wording of the scheme.

Take, for example, a scheme under which an employee who was wholly incapacitated by sickness or injury from continuing to work would receive their salary until death or retirement, provided that he or she remained in the company’s employment, was dismissed after prolonged periods of sickness absence. In these circumstances a tribunal is likely to find that even though the employee’s contract expressly provided for dismissal for prolonged incapacity, there was an implied contractual term to the effect that, except where there was gross misconduct justifying summary dismissal, the employer would not terminate the contract while the employee was incapacitated for work and was receiving the insurance benefit.

How can it be relevant to a statutory action for unfair dismissal?

That really is a topic for another day but in short, although a breach of this implied term is in law only a factor to be considered by a tribunal, it is likely in one of these types of cases to be a very relevant factor, particularly when considering the fairness, equity and merits of the case.

It is important to have regard to the internal capability policy and procedure but also to the terms of any sick pay and permanent health schemes, before arriving at any decisions on termination. The existence of such schemes complicates matters and may well turn a seemingly fair dismissal into a very costly unfair dismissal. It is essential for an employer to understand the terms of such schemes and any limits they may impose.

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Hannah Booth - Communications Manager
About the author

Hannah Booth

A graduate of Lancaster University and holder of a Professional Certificate and CAM Diploma in marketing and digital marketing, Hannah is our Communications & Content Manager. Hannah is responsible for all customer communications for Moorepay, and for leading on and producing key content on legislative and industry topics for the Moorepay knowledge centre.