Death in Service becomes a costly death following service benefit
A recent case has served as a warning to employers seeking to dismiss employee's who may have the benefit of death in service cover. The Tribunal in the case concluded that the employer was liable to pay the estate of the employee the full value of the loss of benefit rather than the cost of the life assurance premium where the employee died within weeks of being unfairly dismissed. The employer will now face a bill of £85,000 for the loss of the death in service benefit.
In the current case the employer dismissed the employee on grounds of capability as he was unfit to work. 5 days following his dismissal he underwent surgery which was intended to make him fit to work. He died 20 days later aged only 44. His father brought a claim on behalf of the estate against the employer. He argued that his son's dismissal was unfair and/ or amounted to disability discrimination. He argued that had his son remained employed, the death in service benefit would have been triggered and paid out to the beneficiaries. The father argued that by being dismissed unfairly the estate was deprived of receiving this benefit and that the true loss was the full value of the potential death in service payout rather than the cost of the premium for the policy.
The initial Employment Tribunal found that in the event he was unfairly dismissed the loss to the employee was the value of the life assurance premium. They concluded that it was the beneficiaries who would benefit from the death in service payout, not the employee, and as the unfair dismissal legislation seeks to compensate the employee for losses arising as a consequence of the dismissal, rather than other third parties, the loss should be limited to the value of the loss to the employee, being the cost of obtaining further life assurance which they said would be the cost of the premium of £350.
On appeal it was decided that the employee had been entitled to receive the benefit of death in service cover whilst he was employed and lost the right to receive the benefit when his employment was terminated. As a result, although his beneficiaries would ultimately receive the payout, the benefit to the employee was the knowledge that the policy would provide financial security for his potential beneficiaries in the event of his death. The Employment Appeal Tribunal concluded that whilst it would often be arguable that the loss to the employee was the value of the insurance premium, as the employee could reduce any potential loss by taking out another policy, given his death had occurred shortly after his dismissal and at a time when he was not in good health and was undergoing medical treatment, it was not reasonable to expect him to obtain another policy during that time. This was notwithstanding the fact that it was expected that he would make a full recovery as a result of the operation. As a result, the EAT concluded that the loss to him was likely to be equivalent to the cost of the death in service lump sum payment itself, not just the premium.
This case should serve as a stark warning to employers to be careful about dismissing an employee where the employee is in ill heath and potentially entitled to receive the benefit of a death in service policy (or indeed permanent health insurance benefits) should they remain employed but lose them in the event they are dismissed. Employers must ensure that any dismissal is fair and not discriminatory or potentially face large claims in the event that the employee should die shortly after the dismissal has occurred or in the case of permanent health insurance, remain unable to work for a prolonged period. This would particularly be the case in respect of death in service benefits where the employee's illness is potentially fatal or death possibly imminent. However, the above case shows that employers can still be caught even where the employee dies unexpectedly within a relatively short period after they have been dismissed.
It is likely that employees with a reduced life expectancy, that are ill, older or have a pre-existing medical condition will find it more difficult and costly or impossible to find an alternative life assurance policy. Those who have lost out on the benefit of permanent health insurance may find it difficult to obtain alternative policies if their medical condition is such that they are unlikely to work for the majority or remainder or their working life. This will no doubt be reflected in any compensation to be awarded when deciding on the value of the loss to the employee as a result of any unfair dismissal or discrimination. Whilst the current cap on the compensatory award for unfair dismissal claims is £72,300, claims for discrimination are unlimited. It may also be possible for the employee (or their estate) to argue that the dismissal amounts to a breach of contract. Such claims can be brought in the courts, rather than the Tribunal, and such compensation is not capped. There is therefore a very real danger that in the event that an employee is unfairly dismissed and dies shortly thereafter, the losses an employer can be expected to pay out will be more akin to the value of the lump sum payment that would have been paid out, rather than the cost of the premium to replace the cover. Given many policies pay out 3 or 4 times the employee's earnings even employees on below average incomes can result in expensive claims.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.