Weekly dilemma: ‘death in service’ benefit cuts

We are tightening our belts and one of the areas to face the chop is right to death in service payments. I also want to establish our sick pay policy for long-term absences at the basic statutory rate. Are there any legal implications I should be aware of before announcing these changes?

It is important to establish whether these are contractual benefits and, if so, whether there are provisions within the terms of the contract which would allow flexibility. It is possible that these benefits are discretionary, but more likely that they are contractual obligations.

Assuming they are contractual, you will need to either agree with each employee that their contract will change, or terminate the contract. Option two of course amounts to a dismissal, which could give rise to potential unfair dismissal claims. A fair process will be crucial to any unfair dismissal defence. It will also provide you with the best chance of reaching an agreement with the affected employees.

The process you adopt may depend on whether 20 or more employees are affected. If so, you need to consider whether you have statutory redundancy consultation obligations. Dismissals that result from employees refusing to agree to contractual changes will be regarded (for the purposes of consultation, but not redundancy pay entitlement or unfair dismissal) as redundancy dismissals. You must therefore carefully consider the statutory consultation obligations where larger numbers of employees are affected, as there will be potential (and sizeable) protective awards liabilities for non-compliance.

Whether you are dealing with two or 2,000 employees, however, it is important to engage in genuine consultation with those potentially affected, explaining the reasons why cuts are being considered and keeping an open mind – employees may accept the need for cuts, but may have an alternative. For example, they may value the death in service benefit and be prepared to sacrifice another benefit or reduce pay. They are also likely to ask whether the cuts are permanent, or whether benefits may be reinstated when circumstances improve.

Where there is wholesale disagreement to the changes, then you may be advised to “go back to the drawing board” rather than forcing changes through by dismissals. Often, where there are good reasons for change and a fair process has been followed, the vast majority of employees will agree, and you may need to dismiss a small number of employees. Those employees may bring unfair dismissal claims. Employment tribunals will recognise the reason for dismissal being within the definition of “some other substantial reason”, and should also be influenced by the consent of the majority.

Mark Leach, partner, employment team , Weightmans LLP



Handling the death of an employee requires employers to combine practicality and sensitivity. Click here for our full guide.

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