Dismissing an employee on the grounds of capability, especially when the reason is ill-health, has never been especially straightforward but Fox v British Airways has suggested that in the event an employee dies soon after dismissal, loss of rights under a death in service benefit may be an issue, albeit an unexpected one.

At first glance understanding the ambit of death in service benefit ought to be very simple. Whilst employed, the employee enjoys the benefit of the employer-provided cover. If the employee dies after employment has been terminated, then they will not qualify for the benefit because they have ceased to be 'in service'. However, what if the deceased employee was unfairly dismissed?

Fox suggests that this may not be such a straightforward issue after all. The facts make sad reading. Mr Fox died tragically young following back surgery which he hoped would cure his condition and allow him to come back to work having been absent for a long period. However, he was dismissed on grounds of capability five days before he was due to have his operation and died unexpectedly three weeks after the operation. His father took an action in the name of his late son claiming unfair dismissal and disability discrimination.

Section 206 Employment Rights Act 1996 states:

'Where an employee has died, any tribunal proceedings arising under any of the provisions of this Act to which this section applies may be instituted or continued by a personal representative of the deceased employee' (s.206(3))

The list to which the section does apply is broad and includes unfair dismissal. The route to a disability claim is somewhat different but in essence there appears to be ample authority to support the right of personal representatives to bring or continue an action for discrimination.

During his employment, Mr Fox had been entitled to a death-in-service benefit worth around £85,000, (three times his salary). As he was not in employment at the date of his death, his dependants did not receive any money under that policy. The judge decided that the loss suffered by the family was the cost of buying a replacement policy which would have cost the family around £350. The £85,000 was the benefit under the policy at the time of Mr Fox's death. Leaving aside any arguments about what the true cost would have been, the EAT held that the loss of the benefit was still a real and valuable loss to Mr Fox and therefore had to be taken into account when considering any compensatory award.

So far as I am aware there have been no findings of liability as such: the substantive claims of unfair dismissal and discrimination had not been heard when the issue of quantum was decided as it was dealt with as a preliminary issue. However what Fox has confirmed is that in the eyes of the courts, where death so quickly follows an unfair dismissal, then the loss of death in service benefit is a real loss and one to be taken into consideration when deciding compensation for unfair dismissal.

Cases on these facts will be rare but for employers this decision has a further serious consequence. If the deceased employee had been in employment, the employee’s family would have received the insurance payment provided for under the terms of the policy, so calculating the loss itself is relatively straightforward. However, the fact that an employee was not 'in service' at the time of their death but had been unfairly dismissed shortly before they died, suggests that the insurers may well be able to avoid liability. It’s the employer who will be the one paying the compensation. I stand to be corrected and indeed many in the insurance industry may see this kind of claim as a client relations issue rather than a strict matter of liability. A question no doubt the industry will ponder.

So, please be careful out there. Dismissal for ill-health related capability is safer being regarded as a last resort. Employers need to follow a careful procedure. It should be a given but where an employee is about to have surgery which may provide a route back to work, make sure you have up to date medical information, you have fully consulted the employee at all stages and you have robust grounds for concluding that dismissal is truly your only option.

This article first appeared in Communicate, the employee benefits newsletter of Origen Financial Services.