A claimant made allegations of unfair dismissal, discrimination, and detriment resulting from whistleblowing. While his claim against the Council was subsequently withdrawn early on, the claim against the private limited company proceeded.

The respondent, however, argued that the claimant was a volunteer and that his claims were vexatious, threatening to apply for a strike-out order and a costs award in the range of £2,500 to £3,000, although the case was postponed due to bereavement. The conflict escalated when the claimant sent two emails to the Tribunal, the first expressing extreme concern over the respondent’s costs warning, stating that, in the absence of certainty regarding the maximum costs the Tribunal might award, he was considering withdrawing his claim. Later that afternoon, after receiving no reply, he sent a second email declaring that he wished to confirm the withdrawal of his claim unless the Tribunal assured him that no costs order would be made against him.

However, the Tribunal’s internal processing of these emails was disorganised, and the Employment Judge, having seen only the first email, correctly identified it as a potential tactical withdrawal and invited the claimant to clarify his position within 14 days. However, a staff member who had seen the second email, but not the first, sent a letter treating the claim as having been fully withdrawn and cancelled the upcoming hearing, although the claimant had since explicitly stated that he wished to continue with his claim. The chaos continued with the Tribunal asserting that the claim had been unambiguously withdrawn and could not be resurrected.

However, the Appeals Tribunal ruled in favour of the claimant as he had made his intent to withdraw conditional upon receiving advice or guarantees regarding potential costs. This ruling means that employers and respondents can no longer immediately rely on a frustrated or conditional email from a claimant as a “get out of jail free” card. Thus, in future cases, Judges are expected to be more interventionist when an unrepresented party suggests they want to drop a claim due to fear or pressure rather than through a genuine desire to end the pursuit of justice.

This case marks a potential end to the prevalent tactic of sending “warning letters” over potential costs to pressure claimants into dropping ‘weak claims’. While these letters are legally valid and often necessary, the bar for such tactics has now been raised, and respondents should be wary of using the threat of costs to trigger an automatic procedural win, as judges may now be more sympathetic to those in financial distress.

A Tribunal recently ruled that payments made for work into a third-party trust constitute immediate employment earnings. This decision effectively precludes employers from using loan-based structures to obfuscate remuneration.

Mr. Jack was employed by an offshore company based in the Isle of Man while living and working in the UK. Under this arrangement, the fees paid for Mr. Jack’s services were split into a modest basic salary and an employee benefit trust (EBT), which would then advance these funds to Mr. Jack in the form of interest-free loans. Because these payments were categorised as loans rather than salary, they were not initially reported as taxable employment income.

Following an enquiry into Mr. Jack’s self-assessment return, HMRC issued a closure notice concluding that the £48,034 transferred to the EBT actually constituted “redirected earnings” and was, therefore, taxable as employment income under Section 62 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003. Mr. Jack appealed, arguing that a significant portion of the funds should be exempt from tax since he had repaid approximately £23,479 of those loans in April 2011.

The Tribunal upheld HMRC’s closure notice and applied the Supreme Court’s decision in RFC 2012 plc. The Judge held that, when money was paid into the EBT for work done by Mr. Jack, it effectively became taxable employment income at that exact juncture as “redirected” earnings. Mr. Jack’s argument that he had “fixed” the tax issue by repaying the loans was also rejected, as the tax charge arose on the transfer to the EBT, and anything that happened to the money afterwards did not affect the tax already owed for the 2010/11 tax year.

This ruling confirms that the legal characterisation of a relationship or a payment in a contract is secondary to the reality of the work performed. Care must be taken when creating structures to minimise tax burden and maximise profits, as the full amount transferred to a trust could be seen as ‘earnings’. Based on the Rangers case, if money is paid in return for services, it constitutes remuneration. On the other side of the coin, if a court views a loan as salary, it may also come to view the recipient as a worker who is entitled to full statutory rights.

The High Court recently ruled on the interpretation and enforceability of “discretionary” bonus provisions in employment contracts. Mr. Gagliardi brought a breach of employment contract claim against a former hedge fund which had contracted him as a senior portfolio manager. The contract in question included a salary, a sign-on payment, a new-issue bonus, and a discretionary bonus based on profitable revenues. Mr. Gagliardi was specifically recruited by the CEO to expand into the US market owing to his expertise in block trading and his valuable relationships with major US banks. The hedge fund’s primary goal was to secure the benefit of these relationships and scale its business quickly, with the CEO tacitly acknowledging that they were essentially “buying his relationships,” hiring Mr. Gagliardi on a “trade and get paid” basis.

Upon joining, Mr. Gagliardi immediately began actively trading in the A1 share class without completing his onboarding process or receiving formal risk limits, leading to conflict with the CIO and risk manager. However, the CEO consistently prioritised Mr. Gagliardi’s trading activity over internal procedure, despite him often exceeding specified trading limits, frequently granting retrospective approval. Mr. Gagliardi’s lack of attention to compliance was also overlooked, as the CEO continued to prioritise profitability. However, a market-wide regulatory inquiry into block trading led to subpoenas to the claimant and the hedge fund by early 2022, prompting the fund to withhold payment of his discretionary bonus. This led the claimant to sue the hedge fund for breach of contract.

The High Court ruled in favour of Mr. Gagliardi, awarding him $5.385m in damages (plus interest), determining that his former hedge fund had indeed breached its contractual obligations in failing to award him any discretionary bonus for his trading activities in 2021. The Judge ruled that the hedge fund’s contractual discretion (governed by Delaware law) was neither broad nor unfettered and, as such, was subject to prescribed contractual criteria.

Despite the use of the term “discretionary,” the High Court has affirmed the principle that an employer’s discretion is not absolute where a bonus is tied to measurable performance criteria such as revenue contributions and profits. This ruling emphasises that, where an employee delivers exceptional financial performance, an employer cannot arbitrarily or irrationally refuse to pay a bonus, as this would constitute a breach of contract, irrespective of any allegations of minor breaches, misconduct or poor attitude that did not reach the threshold for disciplinary action or termination over the period in question. Employers should thus take care over phraseology when structuring discretionary bonuses into contracts.

The Court of Appeal has ruled that the initiation of legal or arbitral proceedings by an employer against a ‘whistleblower’ who has made a protected disclosure constitutes an actionable detriment under the Employment Rights Act (ERA) 1996, effectively overriding the defence of Judicial Proceedings Immunity, or JPI. 

In November 2021, the claimant, initiated Employment Tribunal proceedings against his former employer for post-employment detriment as a consequence of whistleblowing. The claimant, who had worked at his employers’ London residence until his resignation in 2019, alleged that he made protected disclosures regarding instances of verbal and physical abuse by his employer directed at members of staff.

The respondent’s defence was that the claimant had made the allegations for financial gain rather than for altruistic reasons, had breached a confidentiality and independent consulting agreement under ICC Rules, and was effectively running an “extortion scheme” by making “false claims”.  

The Court allowed the appeal based on the protection of whistleblowers by the ERA 1996, concluding that this statutory protection overrides the common law doctrine of JPI. In the Court’s view, allowing an employer to use litigation as a shield against a whistleblowing claim would render the legislation meaningless, as Section 47B(1) of the ERA provides a right not to be subjected to “any detriment by any act” by an employer for making a protected disclosure, including any perceived breach of confidence, as such a mechanism would effectively enable employers to escape liability by suing whistleblowers. Moreover, under Section 43J of the ERA, any confidentiality agreement that precludes a protected disclosure is deemed to be void.  

Thus, the initiation of legal or arbitral proceedings by an employer against a worker, when executed on the ground of a protected disclosure, is actionable as a detriment under Section 47B of the ERA. This ruling effectively prevents employers from using litigation as a de facto penalty or “punitive tool” to harass or financially pressure a whistleblower. The Court has now established that this protection is not limited to threats, but also extends to the act of commencing proceedings. Employers should note that they cannot simply bypass Section 43J by enforcing a confidentiality clause through arbitration proceedings. 

A recent ruling has increased the scope of statutory protection for whistleblowers to include covered detriments against co-workers under the Employment Rights Act 1996. A Mr. Rice was dismissed by his company owner on the grounds of redundancy in February 2021. Mr. Rice asserted that his dismissal was automatically unfair, given that it was motivated by his protected disclosures. He subsequently applied to amend his claim to include a detriment claim against his owner-employer, alleging that his dismissal was a detriment in contravention of Section 47B of the Act. The core issue arose when he sought to amend his claim to include an additional complaint, specifically that his dismissal constituted a detriment inflicted by a co-worker, for which the owner was vicariously liable under the 1996 Act.

This principle states that the exclusion (Section 47B) only bars a direct detriment claim against the employer for its own act of dismissal. However, it does not bar a claim against a co-worker (under S. 47B(1A)) for the detriment of dismissal. Consequently, if a co-worker is liable for the act of dismissal as a detriment, the employer automatically becomes vicariously liable for that act under Section 47B(1B). This effectively allows the employee to bring a detriment claim against the employer for the act of dismissal itself. 

The ruling creates a crucial pathway through which employees may obtain a more comprehensive remedy for the act of dismissal, no longer solely restricting whistleblowers to a claim of unfair dismissal. This significantly increases the potential value of any award for damages, particularly in distressing cases.

Employees can now pursue the individual co-worker who carried out the dismissal – in this case, the owner of the firm. This is an important concession, especially where a company becomes insolvent, as the personal liability remains. Employers should be wary of their conduct toward whistleblowers, as they may find themselves personally liable for their words and deeds.