Dear HR Law Auntie

We are about to embark on a restructure of one of our departments. Out of a pool of six employees, we need to make three redundant. We plan to undertake a selection process against certain criteria to identify which of the six should be made redundant. However one of the six employees has been on long term sickness absence for two years. He is currently on the company’s permanent health insurance scheme. How do we assess him, and what should we do regarding his permanent health insurance entitlement?

Perplexed about PHI, London


Dear Perplexed

1. The redundancy process

The key to handling a redundancy procedure in respect of an employee on long term sickness absence is to make sure, at every stage of the process, that you make reasonable adjustments to take into account his illness and absence. If you do not do so you risk a finding not only of unfair dismissal, but also of disability discrimination. As compensation for disability discrimination is not capped, exposure for such claims can be very large. This is particularly where an individual’s loss may include loss of an entitlement to permanent health insurance.

Therefore it is important to:-

  • Ensure that you thoroughly explain the process to the employee at all stages. An ill employee will need matters set out very clearly, and wherever possible also in writing so that he has time to absorb the information.
  • The employee may not be well enough to attend consultation meetings at the company’s offices (convened in accordance with the statutory dismissal procedures and a fair redundancy procedure). Therefore give the employee the opportunity of attending meetings, but also offer (i) the option of conference calls (which the employee’s companion can also attend), or, (ii) if the employee is not well enough to attend a conference call, the option of you setting out in writing what would have been discussed in the meeting. If the employee elects for the second option make sure you clearly set out the information, so there can be no scope for confusion. Ensure the tone of your letter is appropriate – without the benefit of a face to face meeting to put matters across “sensitively”, written communications will be very important to set the tone of the dialogue, and would be the subject of scrutiny in any Tribunal litigation. The employee should be afforded every opportunity to respond within suitable time deadlines.
  • Ensure the selection criteria you choose are not in themselves discriminatory. For example a selection category “sickness absence” would be inherently discriminatory.
  • Once you have selected your criteria, ensure that when you are scoring the employee, you make reasonable adjustments for his illness and absence.

In order to do this adopt a two-stage scoring system:-

  1. score the employee against each criterion on the basis of your knowledge of him before he went on long term sickness absence;
  2. consider whether if the employee had not been absent, his score would have improved. For example, perhaps he would have gained more expertise in a particular area. If so, adjust his score upwards as appropriate.


  • In order not to discriminate against the employee, you will need to be prepared to retain him even if this means that the company takes on a temporary employee to carry out the position whilst he is off-sick. In other words you cannot put him at a disadvantage just because he currently is not able to undertake the position.
  • Be wary of the decision in Archibald v Fife Council [2004] IRLR 651. In this case the House of Lords ruled that the duty to make adjustments in respect of a person with a disability under the Disability Discrimination Act 1995, applies where the employee can no longer do his existing job and that it may involve transferring the employee to another job where this is reasonable. What is reasonable will be the important question in each case. The extent of the obligations the House of Lords imposed upon the employer in Archibald very much revolved around the particular facts of the case. It is outside the scope of this article to look in detail at the implications of this decision for employers. However as a general rule (not only when scoring the employee but, in the event he is provisionally selected for redundancy, when looking for suitable alternative employment for him), consider what adjustments you can make to put him on an equal footing with a person who is not disabled within the meaning of the Act. It would be advisable to take legal advice on the precise scope of your obligations in this regard.

2. Impact on permanent health insurance (PHI)

You are right to be concerned about the employee’s PHI entitlement. Since the decision in Aspden v Webbs Poultry (1996) IRLR 521, case-law has established that there is an implied term in the contract of employment that an employer will not, without good cause, terminate an employee’s contract of employment in circumstances where the employee is entitled to benefit under a PHI scheme.

Therefore where an employee is on PHI you should only consider terminating employment in those circumstances which, according to case law, the law specifically allows. For example:-

  1. where an employee is redundant; and
  2. where an employee is guilty of conduct justifying summary dismissal.


  • If there is a genuine redundancy situation and the employee is fairly selected for redundancy (i.e. he is selected despite proper reasonable adjustments having been made to his scores) you can in law terminate his employment. Ensure you have a paper trail evidencing the redundancy situation and selection process, so that you can point to it in the event the employee does bring a claim.
  • Notify the insurer in good time that there is a redundancy process underway which may result in the employee becoming redundant. Liaise with the insurer to understand what the implications for the PHI will be. Under some policies there is scope for the insurer to make payments directly to the employee following termination of employment. However this may not be for the full amount of the entitlement (e.g. pension rights and other benefits associated to employment will likely cease). Under other policies the right to the entitlement may cease altogether.
  • At the start of the restructure process notify the employee of the likely effect redundancy will have on his PHI entitlement, should redundancy in fact result. This will inevitably be a matter worrying the employee and as part of your duty of trust and confidence to him you need to explain the position as soon as you can.
  • Keep the employee and insurer updated of the position at all times throughout the process. By liaising with them in good time, and on a continuing basis, you can ensure that any requirements/formalities (e.g. medical reports, employee consents) to ensure a continuation policy can be met in advance of termination. Failure to fully investigate the PHI position; keep the employee informed on a continuing basis; and to complete any necessary formalities in time will expose you to a claim of breach of the implied duty of trust and confidence.

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