News of the World: a closure without closure? Will the stigma last?

July 8th, 2011 by Panopticon Blog

The closure of the News of the World leaves its employees facing an uncertain future. It does not take News International’s own Mystic Meg to predict that that future will inevitably involve litigation. But what is the legal landscape and what claims can we expect?

The publicly reported position of News International is that it “failed to get to the bottom of repeated wrongdoing that occurred without conscience or legitimate purpose”. In a statement to NOTW staff yesterday, James Murdoch announced that the NOTW appeared to have been “sullied by behaviour that was wrong”, even “inhuman”. If the ongoing police and internal investigations confirm that there was serious wrongdoing at the NOTW, the Courts will need to decide whether the wrongdoing was so serious, substantial and systematic that the NOTW’s business as a whole was tainted.

The case-law is clear. If senior employees systematically carry on dishonest operations within what is otherwise a lawful and legitimate business, their conduct may amount to a fundamental breach of all employees’ contracts and thus give rise to claims for damages.

The starting point is the ground-breaking Malik v BCCI litigation in the late 1990s. The House of Lords found that employers owed an implied contractual obligation to their employees not to run a corrupt and dishonest business, as an aspect of their overarching obligation to foster mutual “trust and confidence” (which is a feature of all employment contracts in the UK). This opened the door for the first time to claims for “stigma damages”. If an employer did run a corrupt and dishonest business, and if it was reasonably foreseeable that innocent employees would suffer a measurable handicap in the job market as a result of the cloud of corruption and dishonesty hanging over them, those employees could seek “stigma damages” as compensation for any proven continuing financial loss.

If the allegations of widespread wrongdoing at the NOTW are proven in the inquiries, criminal and civil cases to follow, employees may assert that the NOTW has conducted a dishonest and corrupt business and claim damages if the stigma of that corruption blights their attempts to seek new employment. For NOTW’s part, it will want to head off any such claims by, amongst other things, taking steps at an early stage to mitigate any risk of stigma to former employees.  

Stigma claims are not the only legal avenue likely to be explored. If media rumours as to a “Sunday Sun” prove true some lucky staff may be redeployed and need do no more than scratch out “News of the World” on their business cards and write in the name of the new paper. If the new venture turns out to be the old paper with a new name, it raises difficult questions as to whether other staff can argue  that they become employees of the “Sunday Sun” automatically under a TUPE transfer.

Alternatively, the employees may face a period of collective redundancy consultation followed by unemployment or – if media rumours are true – a pay-out in respect of the 90 day period during which the NOTW was obliged to consult openly with its employees. It may be difficult to see how any consultation could be conducted with an open mind now that it has been announced that the NOTW will definitely close. But if employees don’t sign up to compromise agreements, and if the NOTW ignores its obligations under long-established redundancy legislation there will be some interesting legal questions. Was there an alternative to closing the paper entirely? Would it have been sufficient if senior heads had rolled? Can the NOTW say that exceptional circumstances made consultation impossible? These issues may also have an impact on the likely success of individual unfair dismissal claims.

The extraordinary circumstances which have given rise to the closure of the NOTW will provide fertile ground for lawyers. That will come as little comfort to those NOTW employees facing the prospect of imminent unemployment.


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