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EAT holds that there is no implied term not to dismiss where an employee is receiving PHI benefits

By: Amanda Steadman

Submitted by Firm:
Addleshaw Goddard
Firm Contacts:
Michael Leftley, Sarah Harrop
Article Type:
Legal Update
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The EAT has held that there was no implied term not to dismiss an employee who was in receipt of PHI benefits since this would be contrary to the express terms of the contract of employment which: (i) conferred no entitlement to PHI benefits and contained an "entire agreement" clause confirming that the written contract contained all the terms of the contract; and (ii) permitted dismissal on the grounds of long-term ill health (Lloyd v BCQ Ltd).

The Claimant commenced employment with BCQ Ltd (BCQ) in 1978.  In 1988, BCQ introduced PHI benefits for its employees, including the Claimant.  In 1992, the Claimant entered into a new contract of employment with BCQ which did not include any terms as to his entitlement to PHI benefits.  As is standard practice, the contract of employment also contained an "entire agreement" clause clarifying that all of the terms of the contract were set out in that document.

In May 2007, the Claimant sustained a back injury and eventually went off long-term sick in August 2007.  In November 2010, BCQ's Human Relations Manager met with the Claimant and told him that dismissal was an option if he was unable to return to work within a reasonable period of time.  The Claimant was also told that he would continue to receive his PHI benefit until his 60th birthday, when, under the terms of the insurance policy, his entitlement would end. 

BCQ eventually gave the Claimant six month's notice of termination on 25 November 2010.  The Claimant was informed that his PHI payments would continue until his 60th birthday, although this might be paid as a lump sum payment on the termination date.  The Claimant's employment terminated on 31 May 2011 by reason of his long-term absence and the fact that there was no prospect of his return in the foreseeable future.  The Claimant received a lump sum payment of the outstanding PHI benefit due until his 60th birthday.

The Claimant brought a suite of claims against BCQ, including a claim for breach of contract in respect of the PHI benefit.  The Claimant had argued that there was an implied term (following the decision in Aspden v Webbs Poultry and Meat (Holdings) Limited, 1996) that BCQ would not terminate his employment whilst he was in receipt of PHI benefit.  The Employment Tribunal (ET) rejected the breach of contract claim on the basis that the Claimant had no contractual entitlement to PHI benefits under the 1992 contract of employment.  The contract also contained an entire agreement clause.  In any event, the Claimant had received all the PHI payments to which he was entitled (up to his 60th birthday) and, therefore, there had been no breach and no loss.

The Claimant appealed to the EAT on the basis that the ET failed to hold that there was an implied term that BCQ would not terminate his employment when he was in receipt of PHI benefits (in the absence of misconduct or a serious repudiatory breach of contract).  The EAT dismissed the appeal and agreed with the reasoning of the ET.  First, there had been no breach and no loss as the Claimant had received all the payments to which he was entitled.  Second, there was no express contractual right to PHI benefits and the contract contained an entire agreement clause.  It was not permissible to imply a term which would negate an express term.  The Aspden case was distinguished on its particular facts, wherein it was necessary to imply a term to qualify an express right in order to reconcile conflicting express terms. 

The EAT also noted that even if it had decided that it was necessary to imply a term not to terminate whilst in receipt of PHI benefits, this would be subject to the dismissal being without reasonable or proper cause.  In this case, the Claimant had been dismissed for a fair reason. 

Comment

This decision will be reassuring for employers who offer PHI benefits to their employees.  The implication of a term not to dismiss an employee whilst in receipt of PHI benefits will, it seems, be the exception rather than the rule.  Ensuring that PHI benefits are non-contractual and that contracts of employment contain: (i) clear provisions as to dismissal by reason of incapacity notwithstanding the receipt of PHI benefits; and (ii) an entire agreement clause, should help to resist arguments that an employer may not dismiss where an employee is in receipt of PHI benefits.

Lloyd v BCQ Ltd