Long-Term Sick Employees – How Costly Is Terminating Employment?

Handling the long-term sick employee is a costly business at the best of times. Take the example of an employee who has been off sick for many months, exhausted all contractual pay and is simply sitting on the books on statutory sick pay (SSP). After a suitable analysis of the situation by the employer, and often a significant investment of management time and effort (as well as patience), the employer may reach the point at which it is time to dismiss the employee.

What notice pay, if any, is due to the employee in this situation?

Given the employee is not receiving any pay and they will continue to be off sick during the notice period, you would expect that no pay (apart from SSP) is due. However, employers need to bear in mind a peculiar rule tucked away in the employment legislation, which not only vexes employers but also employment advisers. The rule is contained within Section 87 (4) of the Employment Rights Act 1996.

In a nutshell, there is a distinction to be drawn between an employee who has a contractual notice period of one week or more than their statutory notice entitlement and those whose contractual entitlement is less than this, usually set at the statutory maximum.

The rule was applied in a case called Scotts Company (UK) Ltd v Budd [2003] IRLR 145. Mr Budd had 12 years’ service and therefore was entitled to 12 weeks’ statutory notice. Amongst other issues considered, the Employment Appeal Tribunal concluded that Mr Budd was not entitled to any remuneration during his notice period as his contract provided for a 13 week notice period, one week more than his statutory entitlement of 12 weeks. Had Mr Budd’s contractual notice period been 12 weeks only, then he would have been entitled to receive full contractual salary for that period. This is, in the eyes of most, rather illogical but the current legal position.

Practical points

Employers should check notice periods in their contracts of employment – it may be worth having a notice period that is at least one week more than the statutory notice period. In some circumstances, this can prove to be cost effective as the Budd case illustrates.

Aside from the matter of notice periods and pay, employers should bear in mind issues relating to unfair dismissal, disability discrimination, holiday pay and any other contractual benefits when dismissing an employee due to long-term sickness absence.

If you have any queries arising from this update, please contact Darryll Thomas on 0121 733 4312 or the employment team by email [email protected].


This newsletter does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered.

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