When employees on long-term sickness can lose out..

14 Aug 2019

“We have decided to terminate the employment of one of our employees who has been absent through sickness for over a year with a prognosis that she is likely to be absent for another year at least.  The employee has exhausted all the sick pay due to them.  What payments are they entitled to on termination?”

There are two payments to consider in this situation:

Notice pay
Whether the employee is entitled to notice pay depends on the amount of contractual notice compared to statutory minimum notice.  Any employee who is dismissed is entitled either to contractual notice or statutory minimum notice, whichever is the greater.  Statutory minimum notice periods are one week for employment from four weeks to two years and then for two years’ employment or more, one week’s notice for each year of continuous employment up to a maximum of 12 weeks.
So, if an employee is entitled to contractual notice of one month but has been employed for 8 years, the employee is entitled to 8 weeks’ notice.  If an employee is entitled to one month’s notice and has worked for two years, the employee is entitled to one month’s notice. 

Where an employee is incapable of work because of absence on ill health grounds, in most cases, the employee should be paid full pay whether at the contractual rate or the statutory minimum notice period.  The employer cannot just continue to pay them statutory sick pay if that is still relevant. 
However, there is a sub-section of the Employment Rights Act 1996 which provides that where the contractual period of notice exceeds the statutory minimum notice period by at lest one week and employee has exhausted all entitlement to sick pay, no notice payment is due. 

The employee in this case had worked for six years but, being a teacher, was entitled to a term’s notice, say twelve weeks.  Since the contractual period of 12 weeks exceeded the statutory minimum of six weeks by more than one week, the employee received no notice monies.  There is little logic to this sub-section and its existence has baffled legal commentators. 

Holiday pay
Holiday entitlement continues to accrue during sickness absence and carries over to the following holiday year.  In this case, the holiday year was from January to December and the employee started their sickness absence on 16 April 2018.  The holiday pay to which they would be entitled on termination will be calculated on the apportioned holiday period from 16 April until the end of December 2018 and then from 1 January 2019 pro rated to the date of termination.  A contractual provision which stipulates that holiday leave cannot be carried over to the next holiday year only applies to any holiday in excess of the statutory minimum which for a full-time employee is 20 days per annum. 

For the sake of completeness, one should also note that before terminating employment because of long term sick leave, the employer should:
  • Implement a fair capability procedure; otherwise, the employer might end up facing an unfair dismissal claim;
  • Consider if any reasonable adjustments could be made to get the employee back to work and whether the dismissal may amount to disability discriminatory on some other basis.
If you would like to discuss notice pay, holiday pay or anything else in realation to the above article, please do not hesitate to contact Alan Finlay in our employment team. 

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