Non-executive directors jointly and severally liable

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Tuesday 29 August 2017

Non-executive directors jointly and severally liable to whistleblower for post-dismissal losses

The EAT has decided that two non-executive directors (NEDs) were liable for their part in dismissing a whistleblower. One of the NEDs (who were more akin to executive directors) instructed the other to dismiss the claimant and the other duly did so. The EAT upheld an employment tribunal's decision that the NEDs' actions constituted unlawful detriment on the ground that the claimant had made protected disclosures, contrary to section 47B(1A) of the Employment Rights Act 1996 (ERA 1996), and that the NEDs could be personally liable for post-dismissal losses on a joint and several basis with the employer (which the tribunal found had unfairly dismissed the claimant by reason of whistleblowing).

In reaching its decision the EAT rejected the NEDs' argument that they could not be personally liable for the decision to dismiss (and the losses flowing from it). The EAT distinguished between dismissal within the meaning of the unfair dismissal provisions of the ERA 1996 (which is excluded from the ambit of detriment claims, pursuant to section 47B(2) of the ERA 1996) and dismissal which is not within the meaning of those provisions (and so which could form the basis of a detriment claim). The NEDs' actions of giving an instruction to dismiss and implementing that instruction fell within the latter category, and so were actionable as a detriment claim. Furthermore, there was no provision in law or policy relieving the NEDs of their personal liability to pay compensation for the losses flowing from the detriments.

Whistleblowing employees who have been dismissed should consider whether to bring dismissal-related claims against both the employer (as an unfair dismissal claim) and against the dismissing manager (as a detriment claim). One benefit of doing so is that it might enable the employee to recover an injury to feelings award relating to dismissal, via the detriment claim (such awards not being permitted in unfair dismissal compensation). (International Petroleum Ltd and others v Osipov and others UKEAT/0229/16 and UKEAT/0058/17.)

 

BACKGROUND:

 

Whistleblower rights

A worker has the right not to be subjected to detriment on the ground that they have made a protected disclosure (section 47B, Employment Rights Act 1996 (ERA 1996)). This protection applies to detriment by the employer as well as detriment by the worker's colleagues or an agent of the employer (sections 47B(1) and (1A), ERA 1996). In the case of detriment by a colleague, it will be treated as also having been done by the employer, subject to a reasonable steps defence for the employer (sections 47B(1B) and (1D), ERA 1996).
A worker who is also an employee will have a claim for automatically unfair dismissal if they are dismissed for the sole or principal reason that they have made a protected disclosure (section 103A, ERA 1996).
An employee cannot bring a claim for detriment where "… the detriment in question amounts to dismissal (within the meaning of Part X)"; that is to say, within the meaning of the unfair dismissal provisions of the ERA 1996 (section 47B(2), ERA 1996). The employee would need to bring a claim for unfair dismissal instead. However, a worker who is not an employee (and so who is not eligible to claim unfair dismissal) can bring a detriment claim in respect of termination.
For more information on these and the following matters, see Practice note, Whistleblower protection.

Causation

The sole or principal reason test for unfair dismissal sets a higher hurdle for employees than the "on the ground that" test for a detriment claim. The latter means simply that the protected disclosure must materially influence (in the sense of being more than a trivial influence) the employer's treatment of the whistleblower (Fecitt v NHS Manchester [2011] EWCA Civ 1190; see Legal update, Court of Appeal rules on causation and vicarious liability in whistleblowing cases).

Remedy in detriment and dismissal claims

Both detriment compensation and the unfair dismissal compensatory award are calculated on the basis of what the tribunal considers just and equitable in all the circumstances (sections 49(2) and 123(1), ERA 1996). However, in a claim by an employee against an employer, the two are mutually exclusive. Compensation for unfair dismissal is limited to post-dismissal losses; that is, losses sustained in consequence of the dismissal. (It will not include compensation for pre-dismissal loss.) In contrast, compensation for detriment is limited pre-dismissal losses (Melia v Magna Kansei Ltd [2005] EWCA Civ 1547, at paragraph 21).
In the case reported below, the EAT had to consider whether an individual's decision to dismiss a whistleblowing employee could constitute a detriment within the meaning of section 47B of the ERA 1996, notwithstanding that the whistleblower's claim against the employer relating to dismissal had to be brought as an unfair dismissal claim. The EAT further considered whether such an individual could be liable for post-dismissal losses, on a joint and several liability basis with the employer.

Facts

Mr Osipov was briefly the CEO of International Petroleum Ltd (IP Ltd). IP Ltd is an oil and gas exploration company. At the relevant time, it was primarily concerned with exploration in Niger. Within days of commencing his role, Mr Osipov made one of a number of protected disclosures, generally related to corporate governance and compliance with Nigerien law. There then followed a number of alleged detriments attributed to two non-executive directors (Mr Timis, who effectively exercised executive control, and Mr Sage, who exercised managerial functions) (NEDs) and two external contractors. These detriments included an instruction to Mr Osipov to not visit Niger (which ought to have been a key part of his role) and, approximately four months later, Mr Timis emailed Mr Sage to tell him to dismiss Mr Osipov from his role as CEO, which Mr Sage duly did.
Mr Osipov issued proceedings in the employment tribunal alleging that he had been subjected to detriments and unfairly dismissed for having made protected disclosures. His detriment claims were made against both IP Ltd, as his employer, and against the NEDs and the external contractors in their individual capacities, pursuant to section 47B(1A) of the ERA 1996 (see Background).
Mr Osipov succeeded in his claims against IP Ltd, and the two NEDs and the tribunal awarded approximately £1,745,000 compensation for the detriments and dismissal against all three on a joint and several basis.
IP Ltd and the NEDs appealed to the EAT on several grounds. This update deals with the NEDs' appeal in relation to their personal liability for detriment amounting to dismissal and for Mr Osipov's post-dismissal losses.

Decision

The EAT (Simler P) dismissed the appeal (save on one point, not relevant to this update).
The NEDs' arguments included:
  • Parliament had intended to make a complete distinction between (a) the pre-dismissal detriment regime under the ERA 1996 and (b) the dismissal regime.
  • An award of compensation against them personally could only be made under the detriment provisions of the ERA 1996, not the unfair dismissal provisions.
  • No award could be made against Mr Timis on the basis that he had given instructions to dismiss Mr Osipov. Such a detriment (involving dismissal) could not be an independent detriment by reason of s.47B(2) of the ERA 1996 (see Background).
  • Damages arising out of or post-dating Mr Osipov's dismissal could not be recovered in any detriment claim.
There was no dispute that the NEDs could only be personally liable under the detriment provisions of the ERA 1996. The issue therefore was the scope of those provisions in respect of a claim against a colleague. The EAT stated that the answer lay in the proper interpretation of section 47B(2) and, in particular, the words "within the meaning of Part X". The EAT concluded that the inclusion of those words means that it is only detriments amounting to unfair dismissal claims (which, necessarily, are only against the employer) that are excluded from the scope of the detriment provisions of the ERA 1996. There is nothing in the express words of s.47B(2) that relieves a fellow worker of their liability for a detriment amounting to a dismissal that is not within the meaning of Part X of the ERA 1996. The NEDs' actions constituted a detriment amounting to dismissal (Mr Timis for giving the instruction to dismiss; Mr Sage for carrying it out), but not a dismissal within the meaning of Part X.
In reaching this conclusion the EAT rejected the NEDs' argument that Melia (see Background) was authority to the contrary. Melia was decided at a time before a worker's colleagues could have individual liability for causing detriment and dealt only with the employer's liability. The EAT also commented that it has always been the case that a worker who is not an employee has been able to pursue a detriment case relating to termination. It followed that there was nothing anomalous in permitting a detriment claim against colleagues for detriment amounting to dismissal (such as an instruction to dismiss) even though, as against the employer, the detriment amounting to dismissal would have to be pursued as an unfair dismissal claim.
The EAT acknowledged that its decision meant that different causation thresholds apply for claims about dismissal, depending on whether the claim is against the employer or against a fellow worker:
  • Against the employer, the claim will be for unfair dismissal, for which claimants must show that the sole or principal reason for dismissal was the protected disclosure, and simply establishing that a ground for the dismissal was the protected disclosure is insufficient.
  • Against a fellow worker, the claim will be for detriment, for which claimants need only show that the protected disclosure materially influenced (in the sense of being more than a trivial influence) their colleague's treatment of them. (Fecitt; see Background.)
However, the EAT declined to find that this was a reason for fellow workers to be relieved of liability for detriments done by them.
The EAT further found that the compensation that the tribunal had awarded to Mr Osipov related to losses which flowed directly from his dismissal and the detriments to which he was subjected by the NEDs. It was therefore recoverable from IP Ltd and the NEDs on a joint and several basis. There was no provision or principle relieving the NEDs of their liability.

Comment

There are many reasons to agree with the EAT's decision, not least the aim of ensuring whistleblower protection and fulfilling the policy of making individuals liable for their actions towards whistleblowers. Mr Timis and Mr Sage were found to be the actors behind IP Ltd and so, in a real sense, the people responsible for the unlawful treatment of Mr Osipov. Furthermore, this decision ensures that an employee is put in the same position as a worker, for whom there is no question that they have the right to make a claim against co-workers for detriments amounting to termination of the worker's contract. Nevertheless, the judgment does raise some interesting conceptual and practical questions:
  • Does the judgment truly reflect Parliament's intention? It is clear that Parliament intended that dismissal claims be brought as unfair dismissal claims under Part X of the ERA 1996. It will nearly always be the case that an actual person (or persons) will make the decision to dismiss an employee. However, the EAT's decision appears to allow for that single decision to be counted twice: once as a decision by the employer (which must then be pursued as an unfair dismissal claim) and once as a decision by the individual (which must then be pursued as a detriment claim). That single decision to dismiss, pursued as two different claims, will then be subject to different thresholds for causation.
  • There may be the occasional case where a claim for unfair dismissal against the employer fails but the dismissal-related detriment claim against a co-worker succeeds. This could happen where the dismissing manager is able to persuade the tribunal that their principal reason for dismissing the employee was, say, misconduct but unable to persuade the tribunal that a protected disclosure did not have at least some influence on their decision. It remains to be seen how likely such a scenario would be, but the EAT's decision suggests that it is possible and this could be a reason to doubt the correctness of the decision.
  • If a claim about detriment amounting to dismissal (not within Part X) succeeded but a related unfair dismissal claim failed, the employer could nevertheless be liable for the detriment claim under the vicarious liability rule in section 47(1B) of the ERA 1996 (see Background), subject to any reasonable steps defence. Such an outcome would appear to circumvent the purpose of section 47B(2).
  • Injury to feelings are payable in detriment compensation but not in unfair dismissal compensation. A dismissing manager might therefore be personally liable for injury to feelings arising out of their decision to dismiss, whereas the employer would not (unless held to be vicariously liable for the detriment).
In terms of practical steps, whistleblowing employees who have been dismissed should now consider whether to bring dismissal-related claims against both the employer (as an unfair dismissal claim) and against the dismissing manager (as a detriment claim). The tactics for doing so (or not, as the case may be) will be familiar to practitioners in discrimination claim, where dismissal-related claims are often brought against both the employer and an individual manager (see Practice note, Discrimination in employment: bringing and defending claims: Tactics for the employee). An additional consideration, in the whistleblowing context, is that pursuing the dismissing manager might enable the employee to recover an injury to feelings award relating to dismissal, via the detriment claim. It is unlikely to be wise to only bring a claim against the dismissing manager, if only because employers tend to have deeper pockets to pay any eventual compensation award. From the perspective of employers and managers, they should be aware of the potential increased risks and consider training to mitigate those risks.

 

 

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