Factual and Procedural Background
This appeal arises from a decision of the Employment Appeal Tribunal ("EAT") concerning a claim brought by the Plaintiff, a solicitor and former member of Company A, a limited liability partnership operating as a firm of solicitors. The Plaintiff commenced membership on 1 May 2008 and held senior roles including Managing Partner, Compliance Officer for Legal Practice, and Compliance Officer for Finance and Administration, also sitting on the Board.
In July 2014, a complaint of bullying against the senior partner of Company A was received. The Plaintiff investigated and reported on this matter, with a report scheduled for discussion in October 2014. However, a majority of the Respondents, who are individual members of Company A, refused to attend the meeting. Subsequently, in November 2014, the Respondents demanded the Plaintiff’s resignation as Managing Partner and voted to remove him from that position. The Plaintiff was later removed from his compliance officer roles before submitting his report.
On 5 January 2015, the Plaintiff claimed the Respondents had repudiated the Members' Agreement and gave notice of termination of his membership, citing intolerable conduct. The Respondents denied repudiation and rejected the notice, expecting the Plaintiff to return to work. The Plaintiff confirmed cessation of membership on 5 February 2015 and did not return. He was expelled by the Respondents on 30 April 2015.
The Plaintiff issued a claim in the Employment Tribunal ("ET") on 4 March 2015, seeking compensation under the whistleblowing provisions of the Employment Rights Act 1996 for detriment suffered as a result of protected disclosures. The claim included losses for future earnings, amounting to nearly £3.4 million.
At a preliminary hearing, the ET struck out the claim element relating to termination of membership and consequent losses, relying on the High Court decision in Flanagan v Lion Trust Investment Partners LLP. The Plaintiff appealed to the EAT, which allowed the appeal and refused permission to appeal to the Court of Appeal. Permission to appeal to the Court of Appeal was later granted.
Legal Issues Presented
- Whether the ET was correct to strike out the Plaintiff’s claim relating to constructive termination of LLP membership and associated losses.
- Whether the EAT was correct to allow the Plaintiff’s appeal against the ET’s strike-out decision.
- Whether a lawful termination of LLP membership breaks the chain of causation as a matter of law, thereby precluding compensation for post-termination losses attributable to earlier unlawful detriments.
- Whether the EAT’s decision conflicts with the precedent set in Western Excavating v Sharp regarding the concept of constructive dismissal.
Arguments of the Parties
Respondents' Arguments
- The ET was correct in striking out the claim as the decision in Flanagan precludes the concept of constructive termination of LLP membership and thus bars the claim for losses flowing from such termination.
- The EAT erred in law by allowing the appeal and permitting claims for post-termination losses when the expulsion was lawful and not pleaded as unlawful.
- The lawful termination of membership operates as a new intervening act that breaks the chain of causation for any post-termination losses.
- The EAT’s decision conflicts with the established test of constructive dismissal in Western Excavating v Sharp.
Plaintiff's Arguments
- While the concept of constructive termination is not recognized under LLP law as per Flanagan, this does not bar claims for compensation for post-termination losses attributable to earlier unlawful detrimental treatment under the whistleblowing provisions.
- The ET was not entitled to strike out the claim without hearing evidence as the issue involves questions of fact and judgment regarding causation and attribution of loss.
- The lawful termination of membership does not necessarily break the chain of causation; compensation may be awarded if losses are attributable to unlawful detriments prior to termination.
- The statutory test of “attributable to” in section 49 of the Employment Rights Act 1996 should be understood in light of common law causation principles and allows for compensation beyond termination.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Flanagan v Lion Trust Investment Partners LLP [2015] EWHC 2171 (Ch) |
LLP membership governed by statute and agreement; repudiatory breach doctrine excluded in multi-party LLP agreements. |
The ET relied on Flanagan to strike out the claim, but the Court found that Flanagan did not preclude compensation claims for post-termination losses attributable to unlawful detriments. |
| Prison Service v Beart (No. 2) [2005] EWCA Civ 467 |
Employer cannot escape liability for unlawful acts by relying on subsequent lawful dismissal as breaking causation. |
Court held that unlawful acts causing loss cannot be negated by subsequent lawful acts without factual inquiry; supports Plaintiff’s claim for post-termination losses. |
| Ahsan v The Labour Party [2011] UKEAT 0211/10 |
Chain of causation and effect of lawful acts on claims for unlawful detriments. |
Distinguished on facts; no general rule that lawful termination breaks causation; factual determination required. |
| Reynolds v CLFIS (UK) Ltd [2015] EWCA Civ 439 |
“Tainted information” cases and separate acts approach to causation in discrimination claims. |
Supports that compensation for losses caused by unlawful acts may include post-termination losses even if termination is lawful. |
| Royal Mail Ltd v Jhuti [2017] EWCA Civ 1632 |
Whistleblowing claims and compensation for dismissal consequent on detriment. |
Affirmed that compensation for dismissal consequent on unlawful detriment is not precluded; factual assessment required. |
| Western Excavating (ECC) Ltd v Sharp [1978] ICR 221 |
Definition and test for constructive dismissal in unfair dismissal law. |
Court found no conflict with this precedent as it concerns a distinct legal concept not determinative of compensation claims under whistleblowing legislation. |
Court's Reasoning and Analysis
The Court began by recognizing the procedural context in which the ET struck out the Plaintiff’s claim, assuming the facts as pleaded were true. It emphasized that strike-out powers should be reserved for cases where there is no reasonable prospect of success and that factual disputes must be resolved at a substantive hearing.
The Court examined the High Court decision in Flanagan, which held that the common law doctrine of repudiatory breach does not apply to LLP membership agreements. The ET had interpreted Flanagan as precluding any claim based on constructive termination. However, the Court found that Flanagan does not bar claims for compensation for losses attributable to unlawful detriments prior to termination.
The Court analyzed the statutory framework under the Employment Rights Act 1996, particularly section 49, which requires the ET to assess compensation as just and equitable, having regard to losses "attributable to" unlawful acts. The Court discussed the meaning of "attributable to," concluding that it incorporates a causation concept akin to but not identical with common law "but for" causation, allowing flexible, common-sense application by tribunals.
The Court rejected the Respondents’ submission that lawful termination of membership necessarily breaks the chain of causation. It reviewed authorities including Prison Service v Beart and Ahsan v The Labour Party, finding that the issue depends on factual circumstances and is not determined as a matter of law. The Court further supported this view with the reasoning in Reynolds and Jhuti, which allow compensation for post-termination losses caused by prior unlawful detriments.
Regarding the argument about inconsistency with Western Excavating v Sharp, the Court held that the issues differ fundamentally. Western Excavating concerns constructive dismissal under unfair dismissal law, whereas this case concerns compensation for detriment under whistleblowing legislation, with different legal tests and contexts.
Ultimately, the Court concluded that the ET erred in striking out the claim without hearing evidence and that the EAT was correct to allow the appeal, as the claim involves questions of fact and judgment unsuitable for strike-out at the preliminary stage.
Holding and Implications
The Court DISMISSED the appeal by the Respondents, thereby upholding the EAT’s decision to allow the Plaintiff’s appeal against the ET’s strike-out order.
This ruling means that the Plaintiff’s claim for compensation for post-termination losses linked to alleged unlawful detrimental treatment under whistleblowing legislation may proceed to a full hearing, where factual disputes can be resolved. The decision clarifies that lawful termination of LLP membership does not automatically bar claims for losses attributable to prior unlawful conduct. No new legal precedent was established beyond the application of existing principles to the facts of this case.