Publish date

29 September 2023

What is the difference between termination by mutual consent or dismissal?

The Employment Appeal Tribunal (EAT) held in the case of Riley v Direct Line Insurance Group that it was possible to terminate employment on the grounds of ill-health by mutual consent as opposed to dismissal. This arose from the termination of the Claimant’s employment to allow him to benefit from the employer’s permanent health insurance scheme.

In this case the Claimant had Autism Spectrum Disorder and was employed by Direct Line as a Home Claims Advisor from March 2012. The Claimant was repeatedly absent from work due to this condition over a period of three years. Direct Line worked to support the Claimant to enable him to return to work. These attempts were unsuccessful, however, and following medical assessment, the Claimant was deemed unable to ever return to work permanently.

Direct Line then offered the Claimant access to its employee permanent health insurance scheme, under which his salary would be covered up to state pension age if his employment terminated.

The Claimant consented to being entered into the scheme and his employment was terminated as a result. The employer then sent the Claimant confirmation of this, referring to him as being ‘dismissed’ by reason of lacking capability for the role.

The Claimant later brought claims for unfair dismissal and disability discrimination.  On the unfair dismissal claim, the EAT held that the letter did not act to undermine the mutual consent of the termination, regardless of the use of the term ‘dismissal’.  The EAT held that agreement of the termination had taken place before the letter was drafted and sent.  One of the key issues was that of ‘freely given mutual consent’. The EAT stressed that it must look to the ‘realities’ rather than the ‘form’ of such matters, looking beyond the words used by the employer.

The EAT found that the Claimant had not been tricked into the scheme and that the employer had not intended to coerce or pressure the Claimant into doing so. The EAT held that the Claimant had had sufficient opportunity to engage an independent legal adviser, but had decided against this. Despite a lack of formal legal representation, the Claimant had participated in negotiations with Direct Line, the result being the scheme presented. Further, the EAT found that the Claimant had actively pursued the scheme, enquiring and corresponding with the insurer directly. Applying this reasoning, the EAT considered that the Claimant wished to take advantage of the scheme for his own benefit and that the evidence as a whole pointed to a consensual termination.

Key Takeaways for Employers:

  • When the termination and insurance scheme were initially discussed, the employer clearly outlined its obligations to the Claimant regarding the termination
  • The employer adopted a transparent approach, making clear to the Claimant that entrance in the scheme would result in termination
  • The Claimant raised queries directly with the insurance scheme provider, specifically regarding the practicalities of making payments following termination, demonstrating his understanding of the consequences
  • The Claimant requested confirmation of his termination and informed Direct Line that he adequately understood the situation and the consequences
  • The mere use of the word ‘dismissal’ was held not to have effectively dismissed the Claimant, taking into account the wider context of mutual agreement as to termination.

This case presents a reminder of the importance of keeping detailed minutes, records and documentation where processes such as this are carried out. Correspondence showing that the claimant was aware of his termination and the consequences of it, demonstrating his intention to enter into the insurance scheme were key to Direct Line successfully defending this claim.

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