‘Dishonest and Corrupt’ Companies, Employees and Stigma Damages
| DOI | https://doi.org/10.1108/eb025864 |
| Published date | 01 March 1998 |
| Pages | 63-66 |
| Date | 01 March 1998 |
| Author | Michael Jefferson |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 6 No. 1 — Employment
EMPLOYMENT
'Dishonest and Corrupt' Companies, Employees
and Stigma Damages
Michael Jefferson
INTRODUCTION
If a company becomes known as a corrupt and
dishonest one with the result that employees dis-
missed by the company's liquidators find it more
difficult than they would otherwise have done to
obtain fresh employment, may they claim com-
pensation for the loss of reputation consequent on
being associated with a corrupt and dishonest com-
pany which has led to their problems in the labour
market? The modern term for such compensation
is 'stigma damages'. The House of Lords in Malik
v BCCI SA [1997] 3 All ER 1
(sub
nom.
Mahmud v
BCCI SA [1997] 3 WLR 95) was called upon to
answer this question.
Traditionally the decision of the Lords in Addis v
Gramophone
Co. [1909] AC 488 has been taken to
be that no damages are awarded in a wrongful
dismissal action for the manner in which the dis-
missal took place, even if the way of dismissing the
employee reduced her job prospects. An example
of such a situation occurs when the managing
director sacks the sales director at a conference
attended by all the firms engaged in the same line
of business. It is difficult (though not impossible)
to envisage a competing company's engaging a
director of sales whom the MD has called 'incom-
petent, stupid, lazy, uncouth' and so on. That
Addis
did not permit stigma damages was confirmed
quite recently in Bliss v South East Thames
Regional
Health Authority [1987] ICR 700 by the Court of
Appeal. Accordingly, the law was settled at least at
the Court of Appeal level that stigma damages
could not be granted in an action for wrongful
dismissal. It should be noted that Malik does not
affect the other rule in Addis, namely that damages
may not be awarded in a contractual action for
injured feelings, and the rule still remains that
exemplary and aggravated damages are not avail-
able in contractual actions such as wrongful dis-
missal ones.
THE FACTS OF MALIK
Mr Malik was head of customer services and
deposit accounts at a branch of the Bank of Credit
and Commerce International SA, hereafter BCCI,
in London. Mr Mahmud was the manager of
another of BCCI's London branches. As is well
known, BCCI collapsed, leaving large debts (a
fracton of which has since been repaid). A multi-
tude of actions were brought against BCCI, some
of which are still proceeding. The provisional liq-
uidators of BCCI dismissed the employees includ-
ing Mr Malik and Mr Mahmud.. These two
former employees claimed from the liquidators
their pay in lieu of notice, their statutory redun-
dancy payments and stigma damages. The liqui-
dator disputed only the third claim. Evans-Lombe
J in the Companies Court [1994] TLR 100 and
the Court of Appeal [1995] 3 All ER 545 rejected
the ex-employees' contention that their career pro-
spects had been so adversely affected by their asso-
ciation with BCCI, a corrupt and dishonest
company, that damages were available to compen-
sate them for their financial loss. Addis and Bliss
were precedents which had to be followed by first
instance judges and the Court of Appeal.
The case reached the House of Lords on the
preliminary issue whether stigma damages could
be awarded at all. For the purposes of the appeal it
was accepted (but not conceded) that:
— BCCI was a corrupt and dishonest company;
— the former employees were not themselves
involved in the corruption and dishonesty
associated with the company;
— the information that BCCI was corrupt and dis-
honest entered the public domain after the
bank's collapse;
— the plaintiffs were tainted ('stigmatised')
through their association with BCCI; and
— they suffered financial loss through that stigma
Page 63
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