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Compensation for Death in Service Benefit in Employment Tribunal cases

Compensation for a successful Employment Tribunal claim follows a simple guideline: what is just and equitable in the circumstances?  In this article, we consider how the Employment Tribunal deals with the question of compensation for loss of Death in Service benefit.

In general terms, the legal system aims to put the claimant back in the financial position they would have been in had the unfair or discriminatory dismissal not occurred.  The sum awarded is then subject to various deductions or increases, such as a deduction reflecting any contribution the employee made to their dismissal or an employer’s failure to follow the Acas Code of Practice.  Typically, the employee’s losses will be calculated by referring to the earnings they would have received from the employer had they not been dismissed.  However, the employment tribunal can take into account other types of loss and award compensation accordingly.

Employee benefits package

A Death in Service benefit is frequently offered by employers as part of an employee benefits package. If the employee dies in service, the pension scheme trustees use their discretion to pay out a tax-free lump sum to beneficiaries as they see fit, in line with the family circumstances and nomination forms.

The Employment Tribunal will usually award compensation in relation to loss of Death in Service benefit by reference to the cost of obtaining an equivalent benefit on the open market.  This principle would apply equally to other non-financial benefits, such as medical insurance, life assurance and gym membership.  In order to receive compensation for losses up to the date of the hearing, the claimant has to have purchased an appropriate insurance scheme or contributed more to their new employer’s pension scheme to receive the benefit.  The tribunal is likely to award future losses if it is persuaded that the claimant intends to purchase such insurance.

Death in service benefit

However, in theory, the Employment Tribunal also has the discretion to award compensation on the basis that the employee (or, technically, their estate) has lost the chance of receiving a death in service payout.  We consider that most tribunals would be reluctant to award compensation on this basis, unless there is a real possibility of the employee passing away.  It is therefore a point that appears not to have been tested in the higher courts before.

What happens to the Death in Service benefit if the employee dies?

In the unusual case of British Airways plc v Fox (Father of Mr G Fox (deceased) [2013], the Court of Appeal was asked to rule on what compensation should be awarded if an employee dies before remedy is decided.

Gary Fox was employed by British Airways for over 20 years.  He died during an operation shortly after BA dismissed him for capability reasons; BA had considered him too ill to do his job.

Disability discrimination

Gary’s father, Henry Fox, pursued a claim for unfair dismissal and disability discrimination as a personal representative of Gary and his estate.  If the Employment Tribunal found that Gary’s dismissal was unfair, compensation for loss of Gary’s earnings would have been minimal because of the intervening act of his untimely death.

However, Gary had the benefit of a death in service policy.  His father therefore argued that, if his son’s dismissal was found to be unfair or discriminatory, then the compensation that should be awarded would be the payout from the death-in-service trust.

In challenging the case, BA raised the legal principle that the claimant (i.e. Gary’s estate) could only recover compensation for a loss Gary himself had actually suffered.  In this case, the loss of the death-in-service benefit was suffered by a third party (likely to have been Gary’s parents and siblings, who would have received the death in service payout).

Court of Appeal decision

The Court of Appeal found that the “loss of the chance of death in service benefit being paid […] is to be regarded as a pecuniary loss suffered by Mr Fox for which he could have claimed in proceedings brought prior to his death.”  The judges accepted Henry’s argument and found that the law would be “seriously defective” if an employee was not entitled to compensation for the loss of this benefit being payable to their dependants. Lord Justice Underhill explained that the normally hypothetical situation of Gary’s death had in fact happened and the judges needn’t gaze into the “crystal ball” to consider the chance of a payment being made.  The reality was that if Gary’s estate was to be put in the position he would have been in had the dismissal not happened then Gary would have been “in service” at the time of his death.

An Employment Tribunal will now consider whether Gary’s dismissal was, in fact, unfair or discriminatory.

Implications for employers considering dismissing an employee

This is a very unusual case.  However, it does provides authority for Employment Tribunals to award compensation for loss of the chance of receiving a death in service benefit and acts as a reminder that the tribunal will look at a loss in light of what actually happened in the particular case in front of them.

The case should sound a warning bell for employers who offer death in service benefits and who may be considering dismissing an employee for ill health, particularly, if that ill health could result in death.  As in any case where the employer is considering dismissal, it is important to identify a potentially fair reason for the dismissal and to follow a fair procedure.  It remains to be seen whether an employer will seek to reduce compensation payable in a similar claim by pursuing a potentially difficult argument that the claimant has failed to mitigate his loss by not buying replacement death in service cover.

To discuss the issue of compensation further or if you have any questions about one of your employees or ex-employees, contact our Employment Law team or call us on 0117 904 6000.

Posted on Sep 11th, 2013 by Lyons Davidson

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