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Most people prefer not to think about long-term illness but it
is more prevalent than one might first think. A recent UK study
conducted among a representative sample of more than 5,000 workers
found that 11% of people have already been off work for longer than
six months because of illness or injury.
Permanent health insurance (PHI) remains a common benefit being
offered by employers in the Channel Islands to provide the employee
with increased security if they unfortunately find themselves too
ill to work for an extended period of time (typically over six
months). Unlike the position in England, there is no legal
requirement for employers to pay sick pay in Jersey causing salary
protection schemes like PHI to be particularly important.
However, employers must tread with caution before implementing
PHI schemes. It is important for employers to note that poorly
drafted contracts can mean that simply arranging for the settlement
of the PHI insurance premiums may not be the end of its involvement
or, indeed, liability. Matters can escalate when an employee (or
exemployee) claims that he/she should be, or remain to be, entitled
to PHI benefits and the relevant insurer says otherwise.
Potential pitfalls
A fundamental problem for employers is that the employee (or
ex-employee) may not have a direct line of action to the insurer
and will instead look to the employer. The employee can bring,
potentially, two types of claims against the employer:
A claim for damages (money) for breach of contract which should
have been paid to him/her by the employer under the PHI scheme;
or
A claim for damages (money) for breach of the employer's
implied duty to secure payments from the insurer under the PHI
scheme (essentially the employer should force the insurer to pay
up).
PHI schemes are, as they say, permanent (until the death of the
employee), and can provide the employee with a salary contribution
of up to 75%, resulting in a potential significant liability for
whoever may end up writing the cheque.
Ensuring the relevant contracts are suitably drafted is likely
to be the most effective way of reducing an employer's risk of
being liable for potential damages. For example, limiting the
employer's liability under the contract to ensuring the PHI
premiums are paid rather than expressly providing for payment of
the incapacitated employee's salary even if the PHI insurer has
rejected the employee's claim.
Dismissal
A further problem encountered by employers is what to do with an
employee who is subject to prolonged incapacity. The insurer's
obligation to pay benefits ceases with the termination of the
employee's employment with the employer, so can an employer
dismiss an employee who is in receipt of PHI? The answer is, sadly,
uncertain.
Notwithstanding this uncertainty, a leading authority in England
has held that there is a general implied obligation on an employer
not to dismiss an employee who becomes entitled to claim benefits
under a PHI scheme. Further, the obligation not to dismiss can be
triggered even before the right to claim benefits materialises, if
it seems likely that the employee may be incapacitated from working
for more than the necessary qualifying period.
There are ways in which dismissal of a employee in receipt of
PHI could be justified; such as dismissal for a repudiatory breach
of the employment contract (typically gross misconduct) or
alternatively in the case of a genuine redundancy, but matters must
be progressed very carefully.
Conclusion
Whilst PHI may appear to give employer's more problems than
it solves, the incorporation of PHI schemes in employment contracts
in the Channel Islands is unlikely to disappear given the lack of
statutory protection afforded to employees at present. However,
employers can take steps to ensure they are adequately protected by
ensuring their employment contracts and handbooks are suitably
drafted having obtained specialist legal advice.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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