Death in service benefit: Who suffers?
Mr Fox died within weeks of being dismissed by his employer, British Airways. If he had still been in work when he died, he would have been contractually entitled to death in service benefit of three times his annual salary. Because he had been dismissed, he got nothing. His estate brought claims of unfair dismissal and discrimination on his behalf in the Employment Tribunal (ET), seeking to be compensated for the loss of the death in service benefit.
Pension loss guidelines suggest that Tribunals can award former employees compensation for loss of death in service benefit at the average market rate for equivalent cover. In the ET’s view, whereas the cost of replacing life cover was a reasonably foreseeable loss suffered by a Claimant, the loss of a payout under such cover was a loss which was not suffered by the Claimant but by others (i.e. the Claimant’s beneficiaries). On this basis, the ET made an award of around £350, akin to the conventional award for loss of statutory rights. Mr Fox’s father appealed against the ET’s assessment of the loss.
The Employment Appeal Tribunal (EAT) allowed the appeal on the basis that the death in service benefit represented an asset which Mr Fox lost at the moment he was dismissed. This was a real loss to the Claimant upon which a monetary value could be placed; it did not matter that he himself would never be able to enjoy the proceeds of the benefit.
When deciding the level of the award, the EAT said that in such cases proper compensation should be sufficient to secure payment on death of the agreed sum. Usually, this will be valued as the cost of the insurance premium for a policy which will, as nearly as possible, provide the payment which the employee should have received under the death in service benefit. In this case however, where the Claimant died so soon after dismissal, the EAT accepted that the cost of providing for payment known to be due within a few weeks is unlikely to have been anything less than the sum of the payment itself. Therefore, the loss to the Claimant (in respect of both his claim for disability discrimination, if proved, and unfair dismissal, if established) was the full value of the death in service benefit, i.e. £85,000 or so which was three times Mr Fox’s annual salary.
An unfair dismissal claim brought by a deceased’s estate will normally be hampered by the inability to hear evidence from the Claimant and so in practice seems unlikely to succeed.
This case was also unusual because of the unfortunate short period between the dismissal and Mr Fox’s death. In most cases there will be a reasonable opportunity for an employee to secure replacement life insurance between dismissal and death. Unless the period between dismissal and death is very short, mitigation arguments will normally reduce the amount of compensation which would be payable.