An employee has been claiming sickness insurance for seven years. Now he’s 60, it’s run out and the employer is footing the bill. Can his employment be terminated? Martin Brewer and Esther Smith give advice on a particularly complex case.

The question:

An employee has been off sick for seven years and has been claiming income through our disability insurance. It has already been established that he would never be able to return to work. However, we have a problem in that the insurance finished paying out when he was 60 in May and our retirement age is 65, so he is now not entitled to any more benefit payments.

As his long-term prognosis has already been established can we just send a letter terminating his employment and if so, what will we have to pay him? I’m assuming he will be entitled to his notice period but I’m a bit worried about the legislation over holiday accrued while off sick. Is he entitled to this or does the fact that has received 75% of full pay as opposed to SSP negate this? I’m confused but want to make sure I do this correctly.
 

Legal advice:

This is complex and I can only scratch the surface here. You should seek specialist help about this case as soon as possible.

Firstly, anyone off work for seven years is very likely to fulfil the definition of disabled under the Disability Discrimination Act 1995. This doesn’t mean you can’t act, it just means you have to consider what you do in the light of the likely disability status of the individual. Secondly, what you do depends on what you wish to achieve.
There are several different questions which relate to this scenario.

The first is what is the effect of the insurance. You seem to have a form of permanent health insurance. Case law has determined that you can’t dismiss to deprive the employee of a benefit such as this where the employee needs to remain in employment in order to receive the benefit. Even if you could, you would have to consider whether it would be a reasonable adjustment to keep the employee employed in order to maintain receipt of the benefit.

Second, what is the impact of the policy ending at age 60?  The answer to this depends entirely upon what is in the contract. If the employee has been promised, for example, disability benefits, then that remains his contractual entitlement, irrespective of whether a particular policy exists or not. However, if the contract said that the benefit was based on or conditional on a particular policy being in place then arguably the benefit stops at age 60.

If, and I stress if, you can terminate (having considered both the arguments above) then you do need to follow what in essence will be a reasonable process. Assuming that is pretty simple in this case then you have two issues: Notice pay and accrued holiday pay.

Notice pay will be payable since he continues to be in receipt of pay albeit under an insurance policy or, if that has already ended, directly from you. The recent Stringer litigation does suggest that the employee is entitled to accrued untaken statutory holiday on termination including any rolled over from previous years because it has not been taken as a result of long term sickness. However, do bear in mind that it is arguable that unless he asked for holiday and it was refused there’s no accrued entitlement. Personally I wouldn’t pay it but if he sues for the money, take a commercial view.

As I have said there’s an awful lot going on here, so do take detailed advice before doing anything which might prejudice your position.

Martin Brewer can be contacted at [email protected]. For further information, please visit Mills & Reeve.
 

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If you were looking simply at termination of employment on the grounds of on-going, and apparently, in this case permanent, medical incapability, the employee would be entitled to notice of termination and payment in lieu of accrued but untaken holiday pay. You should be following a process in order to terminate, which would normally include meeting with the employee to consult about the proposed termination, and alternative employment you could offer and give him the right to appeal. While you no longer need to comply with the statutory dismissal procedure, you do need to ensure you follow a process suitable to amount to a fair capability dismissal.

However, I don’t think this situation is as simple as just looking at a capability dismissal as I think you have a potential age discrimination issue here. The only reason the insurance is not provided to him anymore is due to his age, and therefore as an employee in the 60-65 age group, he is being treated less favourably than an employee younger than 60. An employer does have the ability to try to justify less favourable treatment on the grounds of age where there is objective justification for the difference. However, cost alone will not suffice as objective justification and therefore, given that you are able to secure permanent health insurance for employees over 65 but at a higher costs, you should be continuing to provide the insurance rather than simply terminate.

Esther Smith is a partner in Thomas Eggar’s Employment Law Unit. For further information, please visit Thomas Eggar.