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Posted on 19 March 2013

Where an employee is in receipt of private health insurance, an employer might find themselves on the wrong side of a claim for breach of contract where that employee is dismissed. The success or otherwise of such a claim would be dependent on the employee’s contract, the policy rules and whether the employee was wrongfully deprived of the opportunity to claim benefits under the scheme.

Although courts can imply terms into a contract in certain circumstances, the Employment Appeal Tribunal (EAT) refused to do so in Lloyd v BCQ Ltd. This was because there was an express term in his contract which was inconsistent with the term about his private health insurance that Mr Lloyd wanted the court to imply.

What happened?

Having started work for BCQ in 1978, the company took out a private health insurance (PHI) policy on behalf of Mr Lloyd in 1988. There was, however, no reference to it in a new contract dated November 1992, which contained a clause stating that it reflected “the entire understanding between the parties” and superseded all previous agreements.

After suffering a back injury in May 2007, Mr Lloyd returned to work briefly in July but went off again in August that year. He was signed off sick by his doctor for six months in April 2010 and then again in October.

On 18 November the company arranged to meet Mr Lloyd to establish whether he could return to work and warned him that he might be dismissed if he could not. A week later, as he was unable to say when he might return, the company gave him six months’ notice of termination. At the same time, it confirmed his PHI benefits would continue to be paid until his 60th birthday on 21 December 2011.  Mr Lloyd was paid the balance due to him as a lump sum at the end of his notice period on 31 May 2011.

Relying on the decision in Aspden v Webbs Poultry and Meat (Holdings) Limited, Mr Lloyd brought a claim for breach of contract, among other things. He argued there was an implied term in his contract that BCQ would not dismiss him when he was off sick and in receipt of PHI benefits, if, as a result, he would be disqualified from receiving the benefits.

Noting that his 1992 contract of employment was an “all terms contract” which made no reference whatsoever to PHI cover or to any right to it, the tribunal held that Mr Lloyd had no contractual entitlement to any PHI benefits. In any event, there was no breach and no loss as he had received all the payments to which he was entitled up to his 60th birthday.

The EAT dismissed his appeal and distinguished Aspden on the basis that even if that case could be taken as a rare example where terms could be implied to qualify an express right  it had been necessary in that case in order to reconcile express terms of the contract which were mutually inconsistent.

By contrast, there was an express term in Mr Lloyd’s contract which permitted the termination of his contract by notice which would trigger the payment of his PHI benefit.

There was therefore no scope for implying the term relied on by Mr Lloyd, especially as there was no evidence to support his argument that he had a contractual right to benefits under the PHI policy. In any event, as Mr Lloyd had received the equivalent of the PHI benefit, he had suffered no loss and there was therefore no breach.

Finally, said the EAT, even if it was to imply a term along the lines suggested by Mr Lloyd, it could only be implied in cases where the dismissal was “without reasonable and proper cause”. In this case, he had been dismissed for a good reason - his long absence from work and the fact that he had no idea when he might be fit enough to return.

This judgment supports the view that where there is an express term in the employment contract, the tribunal is unlikely to imply a term.

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