One of the most valuable employee perks around is death in service benefit. It’s a form of life insurance and pays out if an employee dies whilst employed by that business. The benefit is provided by an insurance company as a stand alone policy or it might be part of the company’s occupational pension scheme.
Usually it will pay three or four times salary to the estate of the deceased employee and because it can usually be nominated into trust to a recipient it can pass outside the deceased’s estate for IHT purposes. It’s therefore worth having.
That is what the survivors of Mr Gary Fox thought too following his premature death following surgery at the age of 44. He had been ill for some time and his employer dismissed him on grounds of capability five days before he underwent surgery. Consequently the argument arose that he had not been in service when he passed away and his Estate brought a claim for unfair and discriminatory dismissal (on the grounds of disability). It included a claim for the full value of the lost benefit, being some £85,000. The case is Fox v British Airways PLC
It was argued before the Employment Tribunal that the benefit was of no benefit to him, but to his dependents and thus wasn’t his loss at all. The claim ended up at the EAT where it was finally (and sensibly) decided that the loss was his because it was of value to the deceased to be able to provide for his dependents, his estate would have been entitled to receive payment had he still been in employment and because that employment had been unfairly terminated a claim for the full loss arose.
This would have been a painful day for the employer. Death in service benefit is usually paid by the insurance company providing it. However, it only pays out if the employee is still in service: once the employment is terminated the insurer will usually have no further liability. It’s easy to see why the employer in this case pursued the case as it did. If they had been successful it would have been a relatively cheap day in the Tribunal. Instead it became very expensive and an award was made that exceeded the maximum cap on compensation for unfair dismissal.
The final result shouldn’t be surprising though. It has long been established law that an employer can be held liable if it acts in a way that denies an employee the opportunity to claim a contractual benefit, as established in Aspden v Webbs Poultry and Meat Group Holdings Limited  IRLR 521 (not on Bailli unfortunately). In that case the employee was dismissed preventing him from claiming another type of contractual benefit, permanent health insurance. The High Court held that there was an implied term in the contract of employment that an employer will not terminate the contract if that results in him losing entitlement to that benefit.
Subsequently, in Jenvy v Australian Broadcasting Corporation  EWHC 927 (QB) the High Court considered the situation where a senior executive was dismissed without proper cause just before he was about to become entitled to a substantial redundancy payment in excess of £50,000. It was held that the dismissal was unlawful and he was entitled to compensation. If there had been a good cause for his dismissal the result would have been different, but he had been dismissed to avoid payment.
The lesson for employers has for some years now been that care should be taken in these situations because substantial claims may arise. Any discretion or exercise of rights by an employer needs to be exercised reasonably. Mr Fox’s case extends that principle to include ex-employees in more than the usual way in which the phrase is used. It’s the right and sensible decision.