A good reputation is more valuable than money - PERSONNEL TODAY

This article was first published as Personnel Today's Legal Opinion piece in March 2010

A good reputation is more valuable than money...

So said Publilius Syrus in the first century B.C.  – and so declaim claimants today, who make this point time and time again to judicial bodies when seeking large awards of (wait for it) money (!) for loss to reputation.  A recent case has brought this back into sharp focus.

The Resurrection of Stigma Damages 

As experienced HR practitioners will know, the general rule is that compensation for loss of an employee’s reputation arising from dismissal may be awarded only “on the very rarest of occasions”. In the mid 1990s, the collapse of BCCI turned out to be just such an occasion and a narrow exception to the general rule was born.  For the first time, “stigma damages” were identified and it was held that, in principle, claimants who have been very seriously tainted by association with a dishonest and corrupt employer could claim damages to compensate them for their inability to secure alternative employment as a result of such stigma.  In practice, such damages are very difficult to obtain.

The recent Court of Appeal decision in Chagger –v- Abbey National & Another has revived the concept in the mind of employers and employees.  Mr Chagger was of Indian origin and was selected for redundancy.  The Employment Tribunal upheld his complaints of unfair dismissal, racial discrimination and breach of contract (relating to a failure to pay a bonus) and awarded him compensation of £2.8 million.  Mr Chagger had made unimpeachable efforts to mitigate his loss.  He had applied for 111 roles, used 26 employment agencies and had offered to work voluntarily for Abbey National.  He had subsequently re-trained as a teacher.  The Tribunal found that part of a reason for Mr Chagger’s difficulty in finding a job was that he had brought his complaints against Abbey National in an Employment Tribunal and been stigmatised by doing so. The case eventually came before the Court of Appeal, which ruled that the Tribunal had been right to take into account losses that flowed from the stigma of bringing proceedings after a discriminatory dismissal. 

Have the floodgates opened?

The short answer, happily, is likely to be “no”.  It will not be sufficient for a claimant merely to assert that he or she has been stigmatised (usually there should be no reason why a prospective employer would be aware that a candidate is engaged in legal proceedings).  Any such claimant would have to show that their case was the exception, and would have to provide extensive evidence of mitigation efforts, like Mr Chagger.  In a large job market, such claims will be difficult to prove, particularly for any employee who self-sabotages their efforts to find alternative employment by needlessly volunteering the fact that they have brought proceedings against their former employer.

Successful claims for stigma damages are more likely, however, in small or specialised industries, where vacancies are few, or involve a Claimant with a particularly high profile, like Kevin Keegan.  The latter raised a claim for £16 million in stigma damages against Newcastle United in connection with his constructive dismissal from the club in September 2008.  That part of his claim was unsuccessful because his losses were limited by an express contractual clause.  Even so, The Premier League Managers’ Arbitration Tribunal asked itself whether, if that clause had not been valid, Mr Keegan would have been entitled to substantial stigma damages.  The Tribunal found that the publication of its judgment in Mr Keegan’s favour (that he had been constructively dismissed by Newcastle United and had not walked away of his own volition) would restore his reputation.  Mr Keegan had accepted this in cross-examination, and also accepted that he did not know whether anything that had happened at Newcastle United would stop him from getting a job.  Accordingly, even if he had been entitled to stigma damages, they would have amounted to very little.

Key Points

Employers should aim to minimise the risk of successful claims being brought against them by:

• ensuring that their disciplinary and grievance procedures, and their equality policies, are up to date and properly and consistently enforced;
• formulating and enforcing a consistent policy on the provision of standard, neutral  references; and
• training staff not to give “informal” references and to refrain from referring to any proceedings (even unsuccessful ones) brought against the employer.

Jessica Corsi, Partner