Understandably, many employers are currently examining options to reduce staff costs.   One area often under consideration is the area of employee sick pay.   Where a company sick scheme offers sick pay at the employer’s absolute discretion, can the company simply decide not to pay the next who reports sick?

It is well established law that where an employer has an absolute discretion, it must not exercise, or fail to exercise, that discretion irrationally or perversely.

So the starting point would be to examine the terms of his or her employment contract.   Is it clear that the payment is discretionary? Could the relevant clause mean that a payment must be made, however, there is discretion on the amount? If the explanation of the scheme only exists in a non-contractual Staff Handbook as opposed to the employment contract and the invariable practice of making payments has occurred over many years then it may also be construed as being an implied contractual term!

We would suggest that discretionary sick benefits are clearly contractual.   As stated above they should not be exercised irrationally or perversely.   Notifying employees in advance of any sickness that the discretionary payments have been suspended for cost saving measures is unlikely to be irrational or perverse.   Where payment is made and it is genuinely discretionary it is often a good idea to record this by letter on the basis of “don’t expect payment every time”.