Third party loss
Labour & European Law Review Weekly Issue 335 04 September 2013
Compensation for unfair dismissal is calculated according to the loss to the employee of their salary and benefits. In British Airways v Fox, the Court of Appeal held that, as a death in service benefit formed part of Mr Fox’s remuneration, his estate was entitled to be put in the position in which Mr Fox would have found himself, had he not died shortly after being dismissed.
Mr Fox, who was 44, had been off sick for more than six months with a serious back condition. After exhausting his sick pay entitlement he was given notice of dismissal for medical incapacity. Five days after his employment terminated he went into hospital for a major operation and sadly died on 16 October 2010. He did not leave a will.
Had he still been in work when he died, his beneficiaries would have been entitled to a death in service benefit of three times his annual salary (over £85,000), but because he was dismissed he received nothing. Mr Fox’s father brought a claim on his son’s behalf for unfair dismissal and disability discrimination.
Section 123 of the Employment Rights Act 1996 states that the compensatory award for unfair dismissal should be “just and equitable in all the circumstances having regard to the loss sustained by the Claimant in consequence to the dismissal insofar as that loss is attributable to action taken by the employer.”
Decisions of lower courts
The employment judge said that, although the dismissal was unfair, he could not award compensation for the death in service benefit, as it involved a loss to the estate and not a loss to Mr Fox as required by section 123. The beneficiaries were only entitled, therefore, to recover a nominal sum “comparable to the sum awarded for the loss of statutory rights”, in this case a total of £350.
The EAT disagreed. It held that Mr Fox was entitled to the death in service benefit for as long as he remained a BA employee. Once he was dismissed, however, he lost that contractual right. In terms of assessing the value of the loss, the EAT said that any compensation payable should put the party who had incurred it in the same position as though they had not sustained it. Although that would usually be the cost to the claimant of the insurance premium, it agreed with Mr Fox’s father that the sum required to put his son into the position in which he would have been had the principle of full compensation been applied, was the sum payable on death - £85,000.
Court of Appeal decision
And the Court of Appeal agreed, holding held that there would be something seriously wrong with the law if an employee could not claim compensation just because the payment was to be made to a third party.
Instead, it held that the starting-point was that the benefit in question formed part of the employee’s remuneration. It therefore made sense to treat the loss of the benefit as a financial loss that had been suffered by Mr Fox himself.
The estate was therefore entitled to be put in the position in which Mr Fox would have found himself, if he had not been dismissed, which could only be done by awarding the full amount of compensation. However, the Court was at pains to point out that in most “ordinary” cases, the appropriate measure would be the cost of obtaining insurance to provide equivalent benefits. If that was not possible and the tribunal had to value the loss itself, normally it would simply involve the valuation of a “lost chance”.