Summary
Losses resulting from expulsion following whistleblowing can be very substantial, and there is no statutory limit on the amount of compensation that can be awarded.
But in some cases the expulsion of the whistleblower may:
- be based (at least on the face of the expulsion documentation) not on the whistleblowing, but on different, lawful grounds, or
- be achieved by way of resolution of the other members under the terms of the LLP deed, under provisions requiring no grounds to be stated.
In such circumstances it may be argued by the continuing LLP members that the chain of causation between the whistleblowing and the whistleblower’s loss brought about by the expulsion of the whistleblower has been broken, and that accordingly no recoverable loss arises.
The Court of Appeal decision earlier this year in Wilsons Solicitors & others v Roberts1 (”the Roberts case”) brings such scenarios sharply back into focus.
The culture of culling
Some organisations are constantly on the lookout for excuses to thin out the equity, either to deliver higher profits per partner or to remove faces that do not fit. Partners who are either not performing or who are merely approaching retirement age tend to be particularly vulnerable to use of an involuntary retirement power. When such an individual sticks their neck out to make a complaint about something inappropriate going on in the business, they may find that they come under more scrutiny than the person against whom the complaint is made.
While most businesses ostensibly support the reporting of inappropriate conduct, some may try to brush such conduct under the carpet or minimise the fallout if the complaint is against a high-flier or member of an inner circle. Whether or not the complaint leads to disciplinary action against the subject of the complaint, the card of the complainant may be marked indelibly. Relationships may have broken down, the complainant may still be making waves, and a view may be taken that the easiest way to clear the air or “solve the problem” is to exit the complainant.
Very high compensation
Members of LLPs tend to be high earners. Many earn upwards of (multiples of) six figures per annum. If they cannot get back into work (or not at an equivalent level of remuneration) for many years, their level of actual financial loss can be extraordinarily high. Potentially this can give rise to very large recoveries. One employee who earned £148,000 per annum and who was found to be unlikely (because of stigma and adverse publicity) to be able to find equivalent employment during the rest of his working life (assessed as being up to age 63) was awarded compensation of £1.2 million (Watkinson v Royal Cornwall Hospitals NHS Trust2).
The facts in the Roberts case
In the Roberts case Mr Roberts is claiming almost £3.4 million, most of which being future losses. I say “is” claiming because following the Court of Appeal decision the case will be remitted back to the Employment Tribunal for further fact-finding and, if appropriate, quantification.
The facts asserted so far are as follows: Mr Roberts was the managing partner (LLP member) and compliance partner (COLP and COPA) of a firm of solicitors (trading through an LLP). An allegation of bullying was made against the senior partner of the LLP. Mr Roberts investigated the complaint and made two reports to the LLP’s Board.
These reports must have been taken amiss because the members refused to discuss the reports and not long afterwards Mr Roberts was relieved of his managing and compliance partner roles. He asserted that this completely undermined his position in the LLP and made his continued participation as a member impossible. He also asserted that accordingly the other members had in effect repudiated (expressed an intention not to be bound by) the LLP members’ agreement, so that Mr Roberts was entitled to terminate the agreement on a month’s notice, which he gave, and that he thereby ceased to be a member.
The other members disagreed with Mr Roberts and asserted that the LLP agreement had not been terminated and that he was still a member. They required him to return to work. He declined. So they expelled him for breaching the provisions in the LLP members’ agreement requiring him to devote his whole time and attention to the business of the LLP.
The Employment Tribunal claim
Mr Roberts issued Employment Tribunal proceedings against the LLP and certain of its members, claiming that the alleged constructive termination of his membership occurred as a direct result of his reports to the Board on the allegations of bullying against the senior partner, and seeking whistleblower compensation for his resulting losses (“compensation for detriment suffered by a worker as a result of the making of protected disclosures”).
At around that time judgment in the separate case of Flanagan v Liontrust Investment Partners LLP3 was given, finding that (except in limited circumstances which do not apply here) the doctrine of repudiation cannot apply to an LLP.
The LLP applied to the Employment Tribunal to strike out Mr Roberts’ claim that there had been constructive termination of his membership of the LLP. The Tribunal agreed that that claim should be struck out. The Tribunal further decided that the part of Mr Roberts’ claim that related to the termination of his membership and the losses that flow from that termination should be struck out.
The appeal to the Employment Appeal Tribunal
Mr Roberts appealed against the striking out of his claim to be entitled to losses arising out of the termination.
The LLP and the members argued that where there is a lawful termination of LLP membership which post-dates the earlier, alleged detrimental treatment, that termination must be the cause of any post-termination losses and such losses cannot be said to be attributable to the earlier detrimental acts.
Mrs Justice Simler found as follows:
“… The fact that the Claimant’s purported resignation was not effective for the purposes of LLP law does not determine the question of what loss was attributable to the unlawful detriments on which he relied…
If he can demonstrate that the detriments were so serious as to make his position as a member untenable and to prevent him from attending work, I cannot see why he should be barred from making this claim. The question is ultimately one of fact and judgment for the Tribunal and involves no necessary conclusion one way or the other.”
On the question of causation she found as follows:
”Parliament has chosen to use the word ‘attributable’ instead of cause or caused; no doubt for good reason. Attributable is an ordinary English word that is well understood and is capable of being applied flexibly by tribunals of fact on a broad common-sense basis. The statutory test imposed by section 49(2)(b) provides that in deciding what compensation should be awarded, tribunals have discretion to determine what is just and equitable in all the circumstances. But in exercising that discretion, there are two mandatory considerations: first they must have regard to the infringement itself, in other words the nature and gravity of that infringement; and secondly, they must have regard to the loss attributable to the act or failure to act which infringed the individual’s rights. So the connection that must be established between the infringement and loss is expressed in wider language than that of pure causation, and not in terms of a ‘but for’ approach.”
The appeal to the Court of Appeal
The LLP and members appealed to the Court of Appeal. Amongst the issues defined by Lord Justice Singh to be decided by the Court of Appeal were the following:
- Was the Employment Tribunal right to strike out the relevant part of the claim?
- Was the Employment Appeal Tribunal right to allow the Claimant’s appeal?
- Does the lawful act of termination break the chain of causation as a matter of law?
On issue 1 the Court of Appeal found that the Employment Tribunal should not have struck out the claim. Just because there was no repudiation does not necessarily mean that no loss arose from the pre-termination detriment. A factual inquiry is required in order to determine what loss flows from that detriment.
It followed that on issue 2 the Employment Appeal Tribunal was right to allow Mr Roberts’ appeal.
With regard to issue 3, the Court of Appeal affirmed Simler J’s view that the Employment Tribunal is not bound by principles of causation in the traditional sense. It has a wider remit in that it must determine what level of compensation would be just and equitable. The following important passages from the judgment of Simler J in the Employment Appeal Tribunal were approved:
“… The fact that the Claimant’s purported resignation was not effective for the purposes of LLP law does not determine the question of what loss was attributable to the unlawful detriments on which he relied. If the unlawful ‘victimisation’ of the Claimant made his position untenable and led him to withdraw his labour, thereby exposing him to the likelihood of expulsion, it is hard to see why that should as a matter of law (or inevitable fact) be regarded as too indirect or unnatural a consequence to attract compensation in accordance with the statutory test, provided it is satisfied.”
“… Whilst the Claimant’s purported resignation may have been legally ineffective to bring his membership of the LLP to an end, nevertheless his case was that his position as a member became untenable and he withdrew his labour because of the grave and unlawful detriments on which he relied. He says this led inevitably to his expulsion on 30 April 2015. He does not contend that his financial losses are attributable to his acceptance of the repudiatory breaches as terminating his membership but puts his case on compensation in more general terms. If he can demonstrate that the detriments were so serious as to make his position as a member untenable and to prevent him from attending work, I cannot see why he should be barred from making this claim.”
The LLP’s assertion that a lawful expulsion (in this case for failure to attend work) was a new intervening act, which gave rise to the future losses, so breaking the chain of causation between the earlier detriments and the losses, and thus inevitably meaning that those losses could not be linked back to the detriments and recovered as compensation, was rejected by the Court of Appeal. The cases of Reynolds v CLFIS (UK) Ltd and others4 and Royal Mail Ltd v Jhuti5 support the assertion that even a lawful act of dismissal will not necessarily break the chain of causation.
Practical consequences of the decision
The Court of Appeal’s affirmation of the Employment Appeal Tribunal’s decision gives rise to a number of considerations:
Where a business or its officers or employees commit unlawful acts against a whistleblower, which result in the whistleblower’s continuance in the business becoming untenable, there may be a right of the complainant to withdraw labour. It appears to me that by direct analogy this is likely to apply also in discrimination cases and probably in cases of part-time worker detriment. These issues and practical consequences are not limited to LLP member/worker claims. The issues could equally arise in discrimination, harassment, victimisation and equal pay claims in the context of disputes between partners of 1890 Act partnerships and directors of limited companies.
The business concerned will then have to make a difficult choice between allowing that position (non-attendance at work and/or failure to carry out other duties) to continue indefinitely while efforts are made to resolve the parties’ differences (which may not be possible), or initiating a process of termination (which will crystallise the very losses that the complainant will in due course seek to recover, and may precipitate an immediate Tribunal claim).
Equally the practice of seeking to avoid scrutiny of the alleged cause of the breakdown (whistleblowing, discrimination,etc) by terminating on other grounds (or indeed utilising the no-fault-required involuntary retirement provisions to be found in so many LLP members’ of other governing agreements) may not be the panacea or quick and easy solution that some may imagine it to be.
A factual inquiry to determine the cause of the loss will be held in the public forum of the Employment Tribunal, irrespective of any arbitration clause: Clyde & Co LLP v Van Winkelhof6.
The ability to join individuals to a claim of this sort means that not only is the solvency of the business entity that is at risk, but also the solvency of the individuals whose decisions or other conduct brought about the state of affairs complained about. In other words, cases of this type are further examples of situations in which trading through a limited liability entity may not shelter the personal assets of the individual participants.
