No Implied Term that Employee Receiving PHI Benefits Could Not be Dismissed

An employee who was dismissed on ill-health grounds whilst in receipt of PHI benefits could not claim damages for lost PHI benefits.  On the facts of this case, there was no implied term that the employer would not dismiss him in the absence of misconduct or other serious breach of contract. 

In Lloyd v BCQ Ltd L was dismissed on capability grounds after being absent from work for nearly four years and with no prospect of a return in sight.  At the time of his dismissal he was receiving benefits under the employer’s PHI policy.  L argued that it was an implied term of his employment contract that the employer would not terminate his employment, in the absence of misconduct or other repudiatory breach, if the effect of doing so was to remove his entitlement to PHI benefits.   

The employment tribunal and EAT disagreed.  Although in the case of Aspden v Webbs Poultry such a term had been implied, this was in circumstances where the court found that neither the employer nor the employee intended that the employer should be able to exercise its contractual right to terminate on ill-health grounds, where to do so would deprive the employee of PHI benefits.  In that case, the terms of the contract were internally inconsistent and the Court implied a term to deal with something which the parties had overlooked.

The position was different in L’s case.  The PHI benefits were not due under the employment contract.  PHI cover had been provided since 1988, but the contract signed in 1992 made no reference to it and contained a clause stating that it contained all the terms agreed between the parties.  The express terms of the contract entitled the employer to terminate his employment where he had been absent on incapacity grounds for six months and a term could not be implied which contradicted that express term. 

The decision in this case turns essentially on the finding that the employee had no contractual entitlement to PHI.  The contract contained an express right to terminate on sickness grounds and there was nothing internally inconsistent in the contract (in terms of an obligation to provide PHI) which would enable a term to be implied that the employer could not exercise its contractual right to dismiss. For that reason, it is not of general application.  

However, the decision does provide a helpful review of the authorities in this area and confirms that terms will rarely be implied where an express term governs the situation.  Employers who provide PHI benefits but wish to retain the right to dismiss employees on long-term sick should therefore ensure they expressly reserve the right to terminate the employment, even if this defeats the employee’s PHI entitlement.   Since this would be contrary to the purpose of having the PHI scheme in the first place, the term would need to be very explicit in order to be upheld.