Death-in-service benefit – still a benefit after dismissal?

What happens to death-in-service benefit if an employee dies shortly after being unlawfully dismissed?

Death-in-service benefit is a policy taken out by an employer to pay a benefit to the estate of an employee if they were to die during their employment. The payout is usually calculated as a multiple of the person’s salary. The payment is intended to benefit the individual’s dependents, but one issue that can arise is what happens when someone dies shortly after being unlawfully dismissed?

Fox v British Airways plc

The question that arose in this recent case was whether the death-in-service benefit was a loss which was recoverable by the dependants of Mr Fox. The claims of unfair dismissal and disability discrimination were being brought by Mr Fox’s father, on his behalf.

Mr Fox, an employee of British Airways, was dismissed from work on grounds of capability due to a long-term back condition. Only five days after his dismissal, he had surgery intended to enable him to return to work. He later died less than three weeks after the surgery aged 44. But for his dismissal, Mr Fox would have been entitled to a death-in-service benefit worth around £85,000 – three times his salary.

At a preliminary hearing, which also dealt with a jurisdiction point, the Employment Tribunal held that only a nominal amount of £350 to reflect the cost of life insurance was recoverable by Mr Fox’s estate if liability were made out. The Tribunal found that the cost of replacing life cover was a reasonably foreseeable loss sustained by Mr Fox himself, whereas the loss of a payout under that cover was a loss suffered by his dependents and was not a ‘loss of substance’ to Mr Fox.

EAT decision

The EAT allowed the appeal from Mr Fox’s father not to award the full death-in-service sum and ultimately overturned the Tribunal’s decision.

The EAT rejected the argument put forward by BA and accepted by the Tribunal that Mr Fox himself had not suffered any loss and the only loss was to his beneficiaries, and as such, this was not recoverable by Mr Fox’s estate.

The EAT held that the death-in-service benefit was a contractual right which Mr Fox had while he was employed by BA. When he was dismissed he lost the entitlement to have a sum paid to others in the event of his death and that was a real loss upon which a monetary value could be placed.

Will this decision have a significant impact on employers?

Probably not as this is a fairly unusual situation for an employer to face. However, it does serve as a warning that any claim following the death of an ex-employee could be an expensive one to lose or settle, despite the lack of loss of earnings beyond death.

It should also be remembered that the question of paying out for a death-in-service benefit will only arise once liability has been determined. In the absence of evidence from the claimant, this will not be easy for their representative to establish.

One other claim which does need to be considered is the potentially expensive breach of contract claim that could arise where an employee who is dismissed in breach of contract dies shortly after dismissal. In such a case, an individual who would not succeed with an unfair dismissal claim may succeed in recovering the death-in-service payment via the breach of contract route.

As such, any employer with high earning employees and a PILON clause in employment contracts need to ensure that they make good use of this if they wish to avoid this costly claim.

Lois Petty, Solicitor, lois.petty@weightmans.com

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