11 December 2006
Discrimination and whistleblowing claims are bad news for employers, particularly prominent corporations and financial institutions with highly valuable reputations and brands to protect.
Public allegations of sometimes lurid or embarrassing events are not good for business and the time required to deal with them can often result in a very considerable indirect cost. The legal costs only add insult to injury. The growing availability of personal awards against key executives poses a real threat to individual reputations and pockets.
These claims are particularly bad news for multinationals. Those with UK operations should take into account two features of such claims.
First, the ability of employees based outside the UK to sue them in the UK. Claims of this nature are most likely to be made in relation to employees in jurisdictions with few or no valuable employment rights.
Second, the ability of UK-based employees to sue them in non-UK jurisdictions. This is of particular concern in the US, where damages can be far higher than those awarded in the UK, as shown by the sex discrimination suit against Dresdner Kleinwort Wasserstein for $1.4bn (£708m) in damages filed in the US this year by six employees, one of whom was based in London.
The ability of employees/ex-employees to choose the venue in which to bring a claim because of apparently satisfying the criteria for each jurisdiction (or simply being able to mount a tenable argument that they do) is essentially a form of forum shopping. This is now very much in vogue, much as one would expect with the advance of globalisation.
The phenomenon is made possible because the laws of some countries permit particular employment claims to be made by employees based outside that country in certain circumstances.
In the UK the route to employment tribunals for employees based outside the UK who wish to claim protection from unfair dismissal, even in whistleblowing cases, seems to have been closed for the majority of employees following the decision in Lawson v Serco (2004).
In the future, in most circumstances, in order to bring such a claim an employee must have been working in the UK at the time of the dismissal, been based in the UK or be an expatriate with a strong connection with the UK who is working for an employer based in the UK.
This decision relates solely to the territorial scope of the right not to be dismissed unfairly (or bring a whistleblowing claim). As such it will not be a bar to discrimination claims that may be made by an employee who works partly or even wholly outside the UK if certain criteria are satisfied. This is because the territorial requirements for such claims are much less demanding on the employee.
In Saggar v Ministry of Defence (2005), the claimant alleged that he had been discriminated against while based in Cyprus. Since he had worked in the UK at the start of the employment relationship before being transferred to Cyprus, this alone was sufficient to confer jurisdiction on a UK employment tribunal.
However, even an employee working wholly outside the UK may bring a claim if the work is for the employer's place of business at an establishment in the UK, and the employee has been ordinarily resident in the UK at some point during the employment relationship or at the time they applied for or was offered employment.
Similarly, US courts will, in certain circumstances, allow a US citizen working outside the jurisdiction to bring a discrimination claim in the US. Broadly speaking, the employee must be working for a US company or a foreign entity controlled by a US corporation, and a claim cannot be brought if this would violate local laws.
The position in relation to claims akin to whistleblowing made under the Sarbanes-Oxley legislation is less clear. Sarbanes-Oxley is expressed to apply to employees of all publicly traded companies listed on a US stock exchange, which has led to concern that it may have extra-territorial effect.
While decisions in the US to date on this matter - for example Carnero v Boston Scientific Corporation (2006) - favour the view that Sarbanes-Oxley is not extra-territorial, since there have been no decisions of senior appellate courts on this matter, the issue must still be regarded as an open one.
In Germany, in order to bring a claim when working outside Germany, either the parties must have agreed upon German jurisdiction, the employer's registered office must be located in Germany or Germany must be the employee's habitual place of work. In any event, where an employee normally performs their contractual duties outside Germany, German law will only apply if the parties have agreed this in the contract.
While compensation payments made in respect of discrimination claims are uncapped, large US-style compensation claims are not currently being awarded in Germany and awards tend to be a few thousand euros at most. For this reason, even those employees/ex-employees based outside Germany who would be able to bring a claim in the German courts are likely to be deterred from doing so.
Remedies in France are likely to be of concern to employers in particular, since discrimination against a person may be a criminal offence (with sanctions potentially including imprisonment).
Whether an employee working outside France can bring a claim will depend on whether they are working in an EU member state subject to the Brussels Convention. If so, either the employer must be domiciled in France or France must be the habitual place of work (or if there is no habitual place of work, France must be the place in which they were recruited).
Where neither the Brussels Convention nor a bilateral treaty apply, French nationals working outside the EU may be able to bring a discrimination claim in a French civil court even when they were working outside France and their employer was not a French entity, simply by virtue of their French nationality, pursuant to the French Civil Code.
A further reason for forum shopping is that there are some important differences between the laws applicable in different jurisdictions; for example, US age discrimination laws only afford protection to those aged 40 and above. It is these differences that may drive an employee to consider bringing a claim in another jurisdiction where they feel they may have a greater chance of success.
This phenomenon has begun to manifest itself in other subtle forms. In Stephanie Villalba's unsuccessful equal pay claim against Merrill Lynch she was able to use US employees of Merrill Lynch as comparators. The justification for this, accepted by the tribunal, was that, while the Equal Pay Act limited comparators to those employed by an associated employer at establishments in the UK, Article 141 of the Treaty of Rome (concerning equal pay) contained no such territorial limits. The geographical constraints of the Equal Pay Act were not considered appropriate, given that Merrill Lynch was a worldwide organisation considering its pay awards on a worldwide basis.
Although the decision was appealed to the Employment Appeals Tribunal (EAT), this aspect was not commented on, leaving the way open for future applicants to argue that they are entitled to use a comparator based outside the UK.
In view of this, HR professionals should consider reviewing pay levels across all jurisdictions and ensure that they are able to justify any differences, even between employees based in different jurisdictions.
Forum shopping creates potential headaches for HR and diversity professionals in managing this HR risk. It also provides employees working in more than one jurisdiction with powerful ammunition in any negotiations over compensation with their employers.
HR professionals must now not only get their boards to buy in to the implementation 'top down' of appropriate equal opportunities policies, including investing the hours in training of all management, they must also ensure that implementation covers behaviours that may not be unlawful in one particular country, but which are in fact unlawful in other countries in which their company operates.