Sensitive staff issues in probate matters

1. What happens to the employees' contracts of employment?

When an employer dies it is classed as a frustration of contract. This means that any employees' contracts of employment are automatically terminated on the day their employer dies.

2. Do the employees have any entitlements?

Each employee would not be entitled to notice pay but would qualify for a statutory redundancy payment if they had worked for their employer for at least two years, unless the personal representative of the employer's estate (sometimes known as the executor) offers to renew their contract within eight weeks and the employee accepts this offer (for more on this, including what happens if an employee does not accept the offer, see below).

The redundancy payment, any outstanding wages and accrued holiday pay would have to be paid out of the deceased employer's estate.

Where a contract is frustrated there is no dismissal for unfair dismissal or wrongful dismissal purposes. Therefore no claim could be brought for unfair dismissal based on unfair selection or any other grounds.

3. What happens if the employer's personal representative asks an employee to continue to work?

Case law has held that, given the likelihood of a period of uncertainty following the death of an employer, an employee continuing to work under the direction of the personal representative should not be taken as conclusive evidence that their employment had been renewed or that the personal representative had re-engaged them. All concerned are likely to be focused on keeping the employer's estate / household up and running, rather than entering into formal commitments with one another.

As mentioned above, if an employee accepts a formal offer of alternative employment from the deceased employer's personal representative within eight weeks of their employer dying, they will not be deemed to have been dismissed and are no longer entitled to a redundancy payment. In such circumstances, the personal representative would be bound by all aspects of employment law, like any employer, including the need to follow a fair procedure and act reasonably in relation to any future dismissal.

If the employee refuses the offer of alternative employment, in considering whether they remain entitled to a redundancy payment, the questions a tribunal would ask are:

• Did the personal representative make an offer of further employment within eight weeks of the employer's death?
• If they did, was the renewed or new employment offered on different terms from the employee's old terms?
• If the terms were different, was the job offered suitable alternative employment for the employee?
• If the alternative employment was suitable, disregarding the substitution of the personal representative for the employer, was the employee nevertheless reasonable in refusing it?

If the personal representative makes an offer of suitable alternative employment on the same or similar terms within eight weeks of the employer's death and the employee unreasonably refuses the offer, then they would forfeit their right to a redundancy payment.

4. How to ensure the employee's obligations under their contract of employment are best protected?

Whilst contracts of employments will likely contain ongoing obligations, for example in relation to confidentiality, because the contract of employment is deemed to be frustrated, it removes the employee's future obligations.

It would therefore be strongly advisable for the personal representative to enter into settlement agreements with employees who will have had access to confidential information which they wish to continue to protect.  As a consequence, personal representatives should be willing to slightly increase payments made to employees to encourage them to do so.

5. What happens if the employee is entitled to accommodation under a service occupancy agreement?

Private client employers often provide staff with accommodation, usually under the terms of a service occupancy agreement. An employee's entitlement to accommodation under a service occupancy agreement will cease on the date their employment ends (i.e. the date their employer dies). Whilst this is the case, practically it is going to be difficult for an employer's personal representative to be in a position to ensure that the employee vacates their accommodation that day. It would therefore be prudent for the personal representative to take steps to ensure that the employee does not obtain any entitlement to occupy the property as a result of remaining in it beyond their entitlement under the service occupancy agreement. We recommend that legal advice is always sought in these circumstances.

The personal representative should also make arrangements to inspect the property and collecting the keys from the employee when they move out of the accommodation.

If you require further information on anything covered in this briefing please contact Alice Yandle ([email protected] ;+44(0)20 375 7610) or your usual contact at the firm on 020 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP,  March 2016