Whistleblowing liability: Risks for Business and Non-Executive Directors

There have been some significant appeal cases on whistleblowing protection. A recent case considered by the Employment Appeal Tribunal (EAT) involved a company and two non-executive directors being made jointly and severally liable for the detrimental treatment of a whistle blower.

The EAT decision in International Petroleum (International Petroleum Ltd and others v Osipov and others UKEAT/0058/17) makes clear that personal liability applies to individuals for detrimental treatment and can include losses flowing from dismissal: in this case an award amounting to £1.74m. The whistleblowing legislation operates like discrimination provisions and extends liability to NEDs and other officers personally.

The facts

The case had a long history and a complex set of circumstances. Mr Osipov was employed as CEO in the oil and gas business and brought claims against International Petroleum but added as defendants/respondents, the majority shareholder and NED Mr Timis, and Mr Sage, another NED.

The dispute arose following the termination of Mr Osipov’s employment. The company said this was as a result of various concerns and alleged failings, culminating in a breakdown in working relationships. The claimant said he faced interference with his function as CEO, had been excluded from his role and was dismissed having raised concerns about a contract to work in Niger and issues around tendering. The conduct relied as amounting to detrimental conduct included removing Mr Ospirov from a proposed trip to Niger and Mr Timis’ instruction to Mr Sage to dismiss Mr Ospirov.

The Tribunal decision

The Tribunal found in Mr Osipov’s favour and said that Mr Timis and Mr Sage were jointly and severally liable for the conduct and the damages awarded.

In the original Tribunal the court found that in fact both Mr Timis and Mr Sage, even though NEDs, actually managed the business and undertook their responsibilities in a way more akin to executives. Even if this had not been the case, it is likely that NEDs would be regarded as workers and/agents of the organisation. The company was found to be vicariously liable for the actions of the NEDs.

The Appeal

There were seven grounds of appeal and cross appeal to the EAT but the grounds under focus here concern:

  • whether the Tribunal erred in finding Timis and Sage bore individual liability for detriments, and
  • in finding joint and several liability for the damages.

Individual liability?

The whistleblowing legislation in the Employment Rights Act 1996 was amended in 2013 to clarify that a worker can bring a complaint against another worker or agent acting on the employer’s authority. Vicarious liability applies and the detrimental conduct/omission is treated as also done by the employer. This accords with the discrimination regime in the Equality Act 2010.

According to the EAT, detriment amounting to termination of the working relationship can still be brought against individuals even though unfair dismissal claims cannot.

“It puts employees in the same position as workers …………and ensures that employees are given the same protection as workers who are subjected to the most serious detriments and not put in a worse position than those workers. It is likely to be an unusual case where an employee will wish to pursue a claim and seek a remedy against a fellow worker for a whistleblowing detriment amounting to dismissal, rather than pursuing the claim against the employer, but I can see no principled reason for excluding it.”

Joint and several liability?

The award of £1.74m was the total figure which covers unfair dismissal, injury to feelings (which can only relate to detrimental treatment) and unpaid salary. The sum was also grossed up for tax.

The NEDs argued that only the employer could be liable for the damages flowing from the dismissal and that it was artificial to distinguish between an instruction to dismiss (as a detriment) and implementing the dismissal. It followed that any liability and award against them had to be limited solely to losses flowing from the detriment(s). They argued that there was a bright line between pre-dismissal detriment (action before and short of dismissal) and dismissal itself.

The concept of joint and several liability is significant: it means that an award is recoverable from the company and /or the two individuals-in other words, a successful complainant could seek to enforce the award against any one of the defendants.

The EAT saw no reason to distinguish between the compensation for detriment and dismissal and decided the award as a whole was recoverable from the company and/or the individuals. A tribunal can award losses based on what is just and equitable. Where detrimental treatment results in or causes the dismissal, the loss flows from the unlawful, detrimental actions (here of Messrs. Timis and Lake).

Our view

The case is a timely reminder about the care needed when dealing with whistleblowing complaints and claims by both executives and NEDs.

A key point is vicarious liability, under which employers are responsible for the actions of their employees and agents for whistleblowing (and discrimination).

There is a statutory defence to vicarious liability: if an employer can demonstrate that it took all reasonably practicable steps to prevent the unlawful conduct, it will not be held liable. In our experience this defence is seldom used and even more rarely succeeds. In the case of whistleblowing, demonstrating a firm commitment to prevent victimisation for whistleblowing and strong governance in these areas, beyond having a policy and with active engagement and senior support, are critical elements. Evidence is needed of strong systems and controls, and a culture supportive and protective of whistle blowers; these are vital to protect the company and all its board.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.