Stigma damages in breach of contract
Labour & European Law Review Weekly Issue 40 - November 1999 03 November 1999
BCCI v Ali (No 3)  IRLR 508
The long running saga following the collapse of the Bank of Credit and Commerce International in 1991 continues. The House of Lords decision in Malik v BCCI established the principle of stigma damages [1997 IRLR 462] (see Issue 14 of LELR). Where the employer's breach of the contractral duty of trust and confidence creates a stigma, which in turn results in a handicap in the market place, damages are recoverable if the employee can prove a financial loss.
BCCI v Ali was one of the five test cases brought to determine whether the Bank's conduct was of sufficient gravity to be a breach of the duty of trust and confidence and, if so, what was the employee's loss as a result of the breach and whether it should be compensated in damages.
In Ali the High Court dismissed the claims for stigma damages saying that the employees were unable to establish that the negative publicity given to the Bank prevented them getting new work and caused them financial loss. The case means that the precluded flood of stigma damages cases are unlikely to succeed, without proof of actual loss. One of the Court's suggestions for proving loss is for the employees to call prospective employers who turned them down, as witnesses. Not a realistic proposition in many cases! But the evidence of a recruitment agency could be a possibility.
The case however, also gives guidance about the duty of trust and confidence in the context of an employer's general misconduct not aimed at a particular employee.
In Ali there was a document detailing the Bank's dishonest conduct of its business. This "agreed misconduct" included systematic fraudulent activities over a long period of time and on a massive scale, designed to conceal and disguise the Bank's true financial position so as to enable it to continue operating when it was unlawful. The employees were persuaded that the Bank was both respectable and solvent, and were under constant pressure to persuade family, friends and acquaintances to put their money in the Bank. Mr Justice Lightman says in his judgment "The Bank in a very real sense traded on their [the employees] loyalty and integrity".
The Judge says that misconduct on the part of an employer amounting to the breach of the duty of trust and confidence "must be serious indeed". Is the conduct such that "the employee cannot reasonably be expected to tolerate it a moment longer after he has discovered it and to walk out of his job without prior notice?"
A high threshold is required to establish a breach and the conduct must be "grave". It also must be "likely" to "destroy or seriously damage" the relationship of trust and confidence with the employee who makes a claim. The Judge defines "likely" as meaning more than 51% and has "a pretty good chance". He also states that although carrying on a business in a corrupt and dishonest manner is an example of such a breach, carrying on an insolvent business would not necessarily be enough.
Whilst the case makes is no more likely that employees' claims of constructive dismissal will succeed where the conduct complained of is general, not specific to an individual, it does give guidance which will assist advisors. It demonstrates the difficulties in constructive dismissal cases and the full weight of the evidential burden on the employees in these cases.