Employers are liable for “stigma loss”, Court of Appeal rules

The Court of Appeal has ruled that employers in discrimination cases are liable for the 'stigma loss' suffered by dismissed employees who fail to find work because of the decision to sue their previous employer.

Balbinder Chagger was awarded £2.8m in compensation by an employment tribunal in 2007 following his dismissal on the grounds of redundancy from the Abbey National.

The court heard that Chagger, an accountant, had been working as a 'trading risk controller' alongside a white female colleague in a similar role. One of them was to be made redundant and he was chosen.

The employment tribunal upheld his claims of racial discrimination, unfair dismissal and breach of contract. On appeal, the EAT rejected Abbey's arguments on liability but accepted them, in part, on remedy.

Giving judgment on behalf of the court in Chagger v Abbey National [2009] EWCA Civ 1202, Lord Justice Elias said that Chagger's original claim was for £300,000, on the grounds that future loss should be assessed over two years.

Later, however, he increased this to £4m on the grounds that as a result of the discriminatory dismissal he had lost his ability to pursue his chosen career. Elias LJ said that following his dismissal he had applied for 111 jobs, including at the Abbey, where he had offered to work on a voluntary basis. All his attempts to mitigate his loss had failed.

'As far as the stigma contention is concerned, he identified and gave evidence about four specific companies which he believed had refused him employment at least in part because he had taken proceedings against Abbey,' Elias LJ said.

He went on: 'We consider that the original employer must remain liable for so-called stigma loss. First, we do not accept Abbey's broad submission that the mere fact that third party employers contribute to, or are the immediate cause of, the loss resulting from their refusal to employ of itself breaks the chain of causation.

'If those employers could lawfully refuse to employ on the grounds that they did not want to risk recruiting someone who had sued his employer and whom they perceived to be a potential trouble maker, we see no reason why that would not be a loss flowing directly from the original unlawful act.'

Lord Justice Elias said: 'The fact that the direct cause is their decision not to recruit does not of itself break the chain of causation. Nor can the action of the employee in taking proceedings conceivably be treated as such an act.

'It is a necessary step in order to obtain a remedy for the employer's wrong; it would be absurd if it were to distance the employer from the effects of that wrong.'

Elias LJ concluded that stigma loss was recoverable and was 'one of the difficulties facing an employee on the labour market'.

However, the Court of Appeal referred the case back to the original tribunal on the grounds that in assessing loss it should have considered whether to reduce the compensation for future loss to take into account the chance that Mr Chagger would have been dismissed in any event.

David von Hagen, partner at Westminster firm Winckworth Sherwood, acted for Chagger.

He said that if the Court of Appeal ruling stood, claimant lawyers in discrimination cases were likely to use the argument that the bringing of claims stigmatises employees and hampers their attempts to mitigate loss.

'I still think tribunals will take a robust and pragmatic view and are going to want hard evidence,' he said. 'They don't make large awards easily in my experience.'