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Unfair dismissal and permanent health insurance (PHI)

PHI provides employees with pay during long term sickness or incapacity. Policies can define incapacity differently. Some policies define it as an employee’s inability to return to their actual job. Some policies define it as an inability to return to any job. Sometimes the courts get involved if the parties don’t agree on the meaning of the policy terms, as was the case in ICTS v Visram.

The employee worked at Heathrow Airport. He had a contractual PHI plan. Benefits would kick in 26 weeks after the start of absence and continue until ‘the earlier date of [his] return to work, death or retirement’. The employee was entitled to benefits if he was sick and prevented from performing ‘his own occupation’. The employee went off sick. He raised a grievance when benefits did not kick in after 26 weeks. He was eventually dismissed for capability. He won his unfair dismissal and disability discrimination claims. The question was whether his compensation should include the value of any benefits he would have received under the PHI plan. The employer argued that his benefits stopped when he was able to return to any employment, not his actual job.

The employment tribunal said the policy benefits stopped when the employee was able to return to his actual job. As he couldn’t return to that job, he was entitled compensation to reflect what he would have been paid in PHI until his death or retirement. The Employment Appeal Tribunal agreed. They said the employment tribunal had looked at the policy wording and decided that the word ‘return’ meant going back to his actual job with his original employer, not any job. They were entitled to make this decision on the policy wording.

Employers should check the wording of any PHI policy carefully before moving to dismiss an employee who is off sick long term. The cost of compensation associated with PHI payments can be very high.