Statutory Sick Pay on the way? Until then, what does the Contract say?

In our last employment law blog we discussed the recent Government launch of a consultation process inviting views on a Statutory Sick Pay Scheme for employees. 

As the Government announcement indicated, while many employers do provide for sick pay, there is no legal requirement for them to do so. Where a sick leave entitlement is provided, it arises from the contract of employment. While we await with interest the extent of any statutory scheme, in the meantime contractual entitlements (if any) are all that employees can rely on in terms of sick pay from an employer
 
An issue that often troubles some employers is the extent of that contractual sick pay can become a liability. In conjunction, a related HR concept that frequently arises for debate is whether employer custom and practice can, over time, actually create an enforceable contractual right for employees.
 
These two issues can merge where an employer has an inconsistent historical sick pay practice, particularly where the employee absence stems from performance management or disciplinary issues. In this blog, we explore the liability issues that can arise for employers where practice is inconsistent with policy relating to sick pay and explain how custom and practice can overwrite policy.
 
Meaningful legal clarification on these issues can be thin on the ground but the High Court case of Elmes v Vedanta Lisheen Mining from 2014 is a rare example of a superior court ruling on how custom and practice can create  a right to contractual sick pay. If employers do offer contractual sick pay, best practice dictates that clear written contractual provisions are in place, which are then consistently implemented in practice. Furthermore, employers know that inconsistent treatment of sick pay in individual cases will confuse and undermine the general position and that they should only depart from such policies in exceptionally circumstances and then only for very good reason.
 
In the Vedanta case there were a number of plaintiffs who were manager level employees who went on sick leave following a difficult period where employer investigations occurred because of a fatal accident at work. The employees were paid as normal for the first six weeks of absence and sick pay then ceased. The managers brought a High Court action by way of injunction application and raised a number of issues including a claim extended contractual sick pay. On the sick pay point, the employees argued that the cessation of sick pay was void, being in breach of contract and natural and constitutional justice. They stated that while there was reference in written work policies to a six week period, the employer never suspended the pay of an employee who had sustained a work related injury or illness after six weeks and that, in fact, discretion was normally exercised in favour of continuing to pay employees unless there was good reason not to do so. In essence, the employees claimed that the written provisions had been overwritten in practice and that a right to continuing sick pay had effectively been implied into their contracts by virtue of “established custom and practice”. Vedanta admitted that its practice had, on occasions, been to continue to pay sick pay on humanitarian grounds for work related injuries but overall stated that there was no general pattern on sick pay treatment. The High Court found that there was evidence that in a substantial number of cases contractual sick pay continued for much longer than the six weeks specified in the policy. Ultimately, the Court ruled that the company had, through repeated practice, created an enforceable contractual right and it ordered that the employees were entitled to sick pay for a six-month period with a right to re-apply to Court as the matter further developed.

It should be noted that the Vedanta claim was part of a broader dispute involving an injunction application to prevent a disciplinary process from occurring. Stand-alone High Court claims where employees are seeking a contractual sick pay entitlement as the only remedy are rare, although statutory claims to the Workplace Relations Commission may occur for unlawful deduction of wages under the Payment of Wages Act.
 
Another older but interesting Irish High Court case in this regard is Charlton v Aga Khan from 1999 which  also arose in the context of a broader termination of an employment dispute where the Plaintiff employee was seeking an injunction retraining dismissal as well as an order relating to sick pay. In Charlton, even though no express contractual right could be asserted by the employee, the High Court ordered that the employee's salary be paid pending the resolution of the matters in dispute and for so long as she remained ill if she furnished her employer a weekly illness report. The Court accepted her case that “it has always been the position ...that long-standing employees were paid their salary in full when they were absent through illness and that this custom is part of her terms of employment”.
 
The guidance for employers is to have clear contractual written principles and policies in place and, equally importantly, to operate them consistently. Departures from clear policies, even in meritorious cases, should be decided carefully and expressed to be an exception to the default rule. The danger for employers is that any more generous treatment if sufficiently repeated to establish a pattern, may ultimately be seen as the standard by which they will be judged.