Employment lawyers on alert as City layoffs augur discrimination claims
15 October 2007
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Transactional lawyers have been twiddling their thumbs while the litigators have been rubbing their hands with glee following the recent City slowdown.
But, like the litigators, employment lawyers are also bracing themselves for a busy period, with economics consultancy The Centre for Economic and Business Research predicting that more than 6,000 jobs will be lost across the City as a direct result of the credit crunch.
Swiss-based bank UBS has already announced plans to axe 1,500 jobs in London and New York after it posted its first quarterly loss in nine years. Morgan Stanley also said it was dispensing with around 600 employees, while underwriter Lehman Brothers is looking to shed 2,500 workers.
All of this lends itself to a perfect feeding pool for employment lawyers, who say that, while enquiries are not currently flooding in, they are nevertheless preparing for a surge.
Elizabeth Slattery, an employment partner at Lovells, says with recruitment opportunities drying up there is a feeling that there will be a number of disputes on the horizon.
"Where there isn't as much opportunity to move between firms, there's more of an appetite to put forward claims, as employees don't really have a lot to lose, which is why there could be a higher level of disputes," explains Slattery.
With redundancies on the agenda employees are likely to position themselves so they can put forward a subsequent claim of unfair dismissal if they are laid off, says Slattery.
"The City should expect to see a lot more whistleblowing or employees entering their grievances," she says. "This way an employee would be in a better position to turn round and say that they were made redundant because of the grievance they had."
Eversheds employment partner Paul Fontes says that a fertile ground for disputes will come from the selection process for redundancies because not all employers are compliant with best practice, which will leave them open to claims.
"Where there's a redundancy situation all staff should be put at risk, but this doesn't always happen and this leads to the waters becoming murky," explains Fontes.
Fontes says that, while the City has seen many rounds of redundancies in the past, this time it is different due to the introduction of age discrimination legislation last October.
"There will most definitely be employees who feel that they've been hard done by because they're too old or too young who will challenge their companies," says Fontes. "If litigation is brought as a discrimination claim, then employers could be hit hard as they could be potentially liable for remuneration up to retirement.
"But this will be taken in light of the industry, as in the City it's typical for an employee to move on aged around 45-50, and this is something that the firms will be pushing in their defence."
Age discrimination legislation has already been tested by former Freshfields Bruckhaus Deringer insolvency partner Peter Bloxham, who claimed he had to take "forced retirement". While the Central London Employment Tribunal found that the firm had been discriminatory, it said the discrimination was proportionate.
City banks are preparing to be hit by such claims, but as Tanfield Chambers employment barrister Martina Murphy points out, conventional high street lenders are likely to see far higher levels of redundancies.
"Potential claims could come from conventional lenders such as Northern Rock. Taking the bank as an example, it's likely that it will be asset-stripped, which could lead to large-scale redundancies as it closes branches," explains Murphy. "These conventional lenders will have to ensure that their processes for redundancy selection, consultation and alternative employment are up to scratch, otherwise claims could ensue."
Like Fontes, Murphy sees the selection process as the key battleground, with age discrimination likely to be a major factor in any claims brought.
In fact, ask any employment lawyer and they will agree that age discrimination will be a thorn in the side of employers.
Indeed, within six months of the legislation coming into force last October, 972 claims had been accepted by the Employment Tribunal, according to the latest statistics.
If age follows the trend of other discrimination claims, then it is likely the tribunal will see an exponential growth.
Discrimination as a whole, excluding age, has seen a massive 87 per cent increase in proceedings in the past two years, with 20,641 writs accepted in 2004-05 compared with 38,584 last year.
Sex and religious discrimination claims both saw a colossal increase in claims in the last two-year period of more than 100 per cent.
With a statistical trend such as this it is clear why employment lawyers are predicting a surge in age discrimination claims.
Redundancies, however, is not the only arena in which age discrimination is expected to pervade. This year's bonus round could lead to an increase in such claims. Compensation experts are predicting the value of year-end bonuses could be down by as much as 15 per cent across the board as the turmoil in the credit markets takes its toll on investment banking revenues.
Bankers in areas such as structured credit and derivatives are expected to be hit hardest, with remuneration specialists predicting bonus cuts of between 25 and 50 per cent.
Paul Randall, head of employee benefits and incentives at Ashurst, says the City's expectation of bonus cuts could spawn age discrimination claims as some may argue they have been overlooked for decent bonuses due to their age.
"A small bonus could indicate an employee isn't part of a company's long-term gameplan because of their age," explains Randall. "It's likely that employees will argue they didn't get the right bonus because they're too old or young to move up the career path."
Randall says that, although bonuses are on the whole discretionary, employers are nevertheless bound to some protocol.
"As we've seen over recent months, just because bonuses are discretionary it doesn't mean employees aren't going to sue as the employer's bound to ensure a proper procedure is in place when making bonus decisions," he says.
Randall is alluding to recent cases such as former trader Daniel Ridgway suing JPMorgan for $3.5m (£1.72m) for alleged loss of bonus. In this case Ridgway lost, but it shows that the City can expect similar claims to appear in the next bonus round.
So it is clear that employment lawyers are geared up to take on the expected raft of unfair dismissal and bonus claims, with everyone memorising every word of the Age Discrimination Act.
With age discrimination claims having uncapped damages, City employers should make sure they have nimble lawyers on their side.