The surprisingly limited potential for five year compensation awards arising from whistleblowing-related dismissals and the unforeseen effect of interim relief orders.
Recent cases such as Clarke & Dougan v Lifeline Ambulance Service Limited and Catherine Kelly v AlienVault Ireland Ltd and AlienVault Inc have demonstrated the apparent ease with which self-designated whistleblowers can secure interim relief to restrain their dismissal under the Protected Disclosures Act 2014 (the “PDA”).
These cases have been reported in apocalyptic terms for employers as heralding the arrival of a flood of whistleblowing-related litigation, citing the easy availability of interim relief and the potential for compensation awards of up to five years’ gross remuneration under the PDA. But should employers really be that concerned?
In this briefing, Niall Pelly, a partner in Matheson’s employment team with extensive practical experience of handling whistleblowing claims, suggests that these concerns may turn out to be overblown and identifies some potential causes for hope for employers.
In particular, the manner in which the PDA has been drafted suggests that:
- compensation awards for whistleblowing dismissals should be calculated in exactly the same manner as orthodox unfair dismissal claims – ie on the basis of financial loss only;
- payments made to an employee under an interim relief order should be taken into account in assessing compensation; and
- compensation awards of up to five year’s pay should only arise in the most extreme cases – ie where an employee is effectively rendered unemployable as a result of his/her dismissal.
Full details are set out below. _______________________________________________________
The low threshold for interim relief under the PDA
Employees can seek interim relief under the PDA to restrain their dismissal pending the determination of an unfair dismissal claim by merely demonstrating to the Circuit Court that there are “substantial grounds for contending that dismissal results wholly or mainly from the employee having made a protected disclosure”.
This is a lower threshold than the traditional “strong case” threshold that is required for an equivalent award of mandatory injunctive relief to be awarded by the High Court in the context of a wrongful dismissal claim; or indeed the equivalent UK provision which requires an employee to demonstrate to a tribunal “that it is likely on determining the complaint to which the application relates” that the link between an employee’s dismissal and his / making a protected disclosure will be established. As such, it represents a bold new departure in Irish employment law.
Recent cases such as Clarke & Dougan v Lifeline Ambulance Service Limited and Catherine Kelly v AlienVault Ireland Ltd and AlienVault Inc have demonstrated the apparent ease with which self-designated whistleblowers can meet this relatively low threshold.
The possibility of an award of interim relief pending the determination of a claim for unfair dismissal is set out in section 11(2) of the PDA, while the relevant provisions relating to the award of, and the conditions attaching to, interim relief are set out at length in Schedule 1 of the PDA. However, the unfair dismissal claim to which the interim relief relates is a claim that is brought not under the PDA, but under the Unfair Dismissal Acts 1977-2015 (the “UDA”) – a point that is made clear by section 11(2) of the PDA which expressly refers to “a dismissal which is an unfair dismissal by virtue of section 6(2)(ba) of the Unfair Dismissals Act 1977”.
Accordingly, any claim that alleges unfair dismissal on grounds of having made a protected disclosure is a claim that only arises under the UDA as opposed to the PDA. So why is this important?
The fear of five year compensation awards
The headline item for most employment law practitioners when the PDA was introduced was the possibility of a compensation award of up to five years’ gross remuneration in relation to a whistleblowing-related unfair dismissal claim, as opposed to the existing two year maximum compensation award for an orthodox unfair dismissal claim. Unlike the Employment Equality Acts 1998-2015, there are no standalone provisions within the PDA that relate to compensation awards for unfair dismissal. Instead, the compensation provisions are set out in (and limited by) section 7(1A) of the UDA (as inserted by section 11(1) of the PDA.
However, one point that has yet to be explored by case law is the basis on which such compensation is calculated. This is largely due to the fact that, as yet, whistleblowing-related unfair dismissal claims have only proceeded as far as the Circuit Court, and have yet to reach the WRC.
Calculation of compensation for unfair dismissal whistleblowing claims
The fact that a whistleblowing-related unfair dismissal claim arises only under the UDA, and the fact that the facility for compensating an employee for having being dismissed in such a manner is similarly confined to the UDA, means that it logically follows that any compensation that is awarded must be awarded on the same basis as any other compensation award under the UDA. That the same approach should be adopted in relation to compensation awards for whistleblowing dismissals is inarguable by virtue of the explicit reference to section 7(1)(c) in section 7(1A), which itself establishes the five year maximum compensation provision. So what does that mean in practice?
Are compensation awards limited to financial loss or non-financial loss?
It is well established that compensation awards under the UDA are based on financial loss, and do not contain any provision for punitive or exemplary damages, or for injury to feelings. In addition, any such award must be made in accordance with section 7(1)(c) of the UDA, which confines such awards to “financial loss attributable to the dismissal”. This is itself limited by the principles set out in section 7(2) of the UDA which imposes, amongst other things, a duty on the part of an employee to mitigate his / her loss.
If compensation awards for whistleblowing dismissals are calculated on the basis of actual loss (and estimated prospective loss) only in the same way as orthodox unfair dismissals, then it is difficult to see on what basis such awards would (or could) materially differ. As it happens, it is extremely rare for a maximum two years’ compensation award to be made for an orthodox unfair dismissal claim, which suggests in turn that there would need be a very compelling set of circumstances for an award of over two year’s compensation to arise in the context of a whistleblowing-related claim.
In simple terms, the circumstances of the dismissal would have to have a catastrophic impact on the future employability of the individual who has been dismissed for actual or estimated loss of over two years’ gross remuneration to arise. How often is an employee waiting for over two years to secure new employment?
The likelihood of such an outcome arising in a standard claim, which is held in private by the WRC and where the employee’s details are anonymised in the judgment (at least at first instance), is debateable. If the case involves a Circuit Court order, then an employee’s name will likely be in the public domain. However, it still does not automatically follow that he or she will be rendered unemployable for ever after. There will of course be certain high-profile claims where such an outcome is a possibility, but these should be the exception rather than the norm – particularly as the flow and frequency of these types of claim increases over time.
Should Circuit Court-ordered interim payments be offset against unfair dismissal compensation awards?
If one accepts the proposition that compensation awards for whistleblowing dismissals are limited to actual loss and estimated prospective loss, then one must also factor in the effect of the interim relief provisions into such a calculation.
The interim relief provisions are explicitly designed to compensate an employee for loss of “pay or any other benefit derived from the employment…from the date of its termination…until the determination or settlement of the claim.” (paragraph 3, Schedule 1 of the PDA). Paragraph 3(3) of Schedule 1 specifically directs the Circuit Court to make an order for the continued payment of an amount “which the employee could reasonably have been expected to earn during that period.”
Assuming that the amount that the Circuit Court orders to be paid does in fact compensate the employee for the actual loss suffered by him/her up until the determination of his / her associated unfair dismissal claim, then that begs the question as to what the employee is being compensated for in the event that he / she succeeds with their subsequent unfair dismissal claim? Where interim relief has been ordered, any actual loss suffered by the relevant employee will in fact be minimal - to the extent that any additional compensation for actual loss suffered would result in a double recovery for the employee.
This possibility is adverted to in paragraph 3(5) of Schedule 1 of the PDA which specifies that any payment that is ordered by the Circuit Court to continue paying an employee between the date of dismissal and the date of determination of his/her unfair dismissal claim “goes towards discharging any liability of the employer under, or in respect of breach of, the terms of conditions of employment or contract of employment in respect of that period.” While it does not explicitly refer to a compensation award under the UDA, it is clearly analogous.
Potential practical impact for employers
Given the relatively recent commencement of the PDA, and the inevitable lead-time that arises in relation to these types of claims, these issues have yet to be tested before the WRC or the Labour Court. At the time of writing, we are not aware of a single unfair dismissal whistleblowing case that has been adjudicated upon by the WRC, which has been preceded by an order for interim relief by the Circuit Court.
However, pulling together the various strands outlined above, the following tentative propositions can be advanced:
1. The doomsday scenario for employers of compensation awards of five years’ gross remuneration being routinely awarded to employees appears to be overblown.
Save in extreme cases, compensation awards for whistleblowing dismissals should not vary much from orthodox unfair dismissal claims as they are both calculated in the same manner by reference to actual loss and estimated prospective loss. This naturally assumes that the WRC and the Labour Court will correctly apply the compensation limitation provisions set out in section 7(2) of the UDA, and so the onus rests with employer-side representatives to apply pressure to ensure that this is the case.
2. Orders for interim relief from the Circuit Court may not be as damaging to employers as first suspected.
While employees will continue to be paid during this period, the basis for subsequent compensation for unfair dismissal will reduce. This in turn may mean that the battleground for whistleblowing claims in the future insofar as compensation is concerned may be in relation to the calculation of estimated prospective loss, in circumstances where compensation has already been afforded for actual loss between the date of dismissal and the date of the compensation award.
Payments made under an interim relief order can conceptually be viewed as a pre-payment of compensation for an unfair dismissal. However, there is no express facility within the PDA for an employer to recover sums that are paid to an employee between the date of their dismissal and the date of determination of their claim, if it subsequently transpires that the employee is unsuccessful with their claim.
Somewhat perversely, this means that an award of interim relief may be more damaging for an employer who has a strong chance of defending the underlying unfair dismissal claim; as opposed to an employer who is likely to lose, and against whom an award of compensation is subsequently made.
3. The predicted flood of whistleblowing claims may not arise (or at least not for the reason that has been envisaged to date).
Ever since the PDA was introduced, speculation has centred on the likely flood of whistleblowing claims arising from the possibility of securing compensation of up to five years’ gross remuneration. However, if it transpires that compensation awards for whistleblowing dismissals do not in fact vary much from orthodox unfair dismissal awards, then employees may take the view that it is not worth the risk of establishing an additional proof (i.e. causation between the protected disclosure and the relevant dismissal) when a similar level of compensation can be secured via an orthodox unfair dismissal claim.
As a consequence, as is sometimes the case with employment equality claims, the principal attraction of a whistleblowing claim may be the fact that there is no minimum service requirement to bring such a claim. However, unlike an equality claim, the fact that an employee has successfully mitigated his / her loss will be a factor to be taken into account in the context of assessing compensation for such a claim.
In our experience, whistleblowing claims have been used in the UK as a means to sidestep minimum service requirements and statutory compensation caps that otherwise apply to ordinary unfair dismissal claims. It remains to be seen if a similar approach will be adopted in Ireland in circumstances where the minimum service requirement for an ordinary unfair dismissal claim is lower in Ireland (one year’s service in Ireland as opposed to two in the UK) and the compensation cap is higher (up to two years’ gross pay in Ireland as opposed to the lesser of one year’s pay or £78,962 in the UK).
It remains to be seen how all of these issues will be ironed out in practice, but it certainly appears that there may be cause for hope for employers insofar as compensation awards for whistleblowing-related unfair dismissal claims are concerned. However, this may be offset by the potential for awards of reinstatement in response to such claims.
We will take a further look at the issues relating to such awards, and the extent to which employers can seek to challenge them, in the coming weeks.