Defame and fortunes

 Kevin Keegan’s exit from Newcastle United FC in September 2008 dominated the back pages of the ­weekend’s papers recently.

Around the same time Johnny Cameron, a former senior banker and right-hand man to former RBS chief executive Sir Fred Goodwin, was reported to have resigned from Odgers Berndtson following a short-lived career at the headhunters. 

Keegan chose to walk out of St James’s Park – for the second time – because he felt his employer had undermined his ­authority over the club’s transfer policy. There was significant coverage as to whether the club’s actions constituted a fundamental breach of trust and confidence and the enforceability of a £2m compensation cap, but also of his controversial and unsuccessful claim of £16.5m of ­’stigma damages’. Keegan alleged he had “found it and will continue to find it difficult, if not impossible, to obtain work again”. In contrast, Cameron is reported to have resigned to ‘avoid damage’ to Odgers days after it lost a major government ­contract.

Stigma damages

While Cameron appears to have bowed out gracefully, he may be wondering if there appears to be a cloud over his future employability. Given the strength of public opinion against bankers and the ongoing ‘bailout’, Cameron cannot be alone in this predicament. So, could former senior bankers take over where Keegan left off and seek to push forward the law on stigma damages?

The concept of stigma damages in breach of contract claims is not a new ­phenomenon. In the mid-1990s the ­collapse of The Bank of Credit and Commerce ­International (BCCI) was considered by Mr Justice Lightman as “the greatest scandal in the history of banking”. That statement is now almost a cliché. Back then BCCI was big news. It resulted in a flood of claims from former employees who had been made redundant and who alleged that working for BCCI meant they were unable to find work elsewhere due to the stigma of being ­associated with the public perception of their former employer.

BCCI challengers

In Malik & Mahmud v BCCI SA (In ­Liquidation) (1997) the House of Lords held that a former employee could theoretically claim stigma damages from their former employer for loss of reputation or impaired future prospects in the labour market due to its practices. Of the 369 stigma claims, five were selected as test cases.

In BCCI SA (In Liquidation) v Ali & Ors (No 3) (1999) Lightman J dismissed all of the claims. He held that, although the claimants had established conduct by their former employer likely to destroy or seriously ­damage the relationship of trust and confidence, they had failed to show that the breach had caused them any personal ­financial loss. He emphasised the critical importance of credible evidence by the prospective ­employer or their agent of the impact of the stigma on the recruitment decision.

The BCCI situation is evidently an extreme example, but a claim for stigma damages did appear in a significant number of claimants’ schedules of loss for some time thereafter. So it is certainly possible that this could happen again.

Testing times

Whether acting for the former employee or employer, legal advisers need to consider the conduct of the employer and each element of the test. Did the employer, without ­reasonable and proper cause, conduct itself in such a calculated manner that it was likely to destroy and/or seriously damage confidence and trust between the employer and the employee? To assess this the adviser would need to examine where the distinction lies these days between a corrupt business, incompetence at senior management level and an unsuccessful business. If it can be shown that the employer’s conduct actually justified the employee to lose trust and ­confidence, then there will be a breach. There will then be a need to show that this breach caused financial loss, which may be difficult.

A senior employee may find it easier to argue that their seniority may suggest that they were implicated personally in their employer’s wrongdoing and thus they would be more likely to persuade a court that this ‘stigma’ was the likely cause of them not landing another job of a similar nature or seniority.

This, though, will need to be supported by evidence. Ironically, some may say that, for Cameron, a recruitment consultant may be the best option for obtaining such evidence, as Odgers’ chief executive was reported in The Times as stating that Cameron’s ­former role “makes it impossible for him to work in a major bank or for government for the time being”. So perhaps the substantial evidential ­hurdles in the way of success in claims for stigma damages are not insurmountable, particularly in light of the willingness of the courts over the past 10-15 years to explore, and often to seek to develop, the duty of trust and confidence.

While it is open to debate whether Keegan is now unemployable as a football manager, he does appear to have reopened a Pandora’s box with his claim for stigma damages; and although Cameron has ­chosen not to follow Keegan’s lead, others may well do so.

Ann Bevitt is a partner and head of employment and Suzanne Horne is an associate at Morrison & Foerster