Administrators will note with concern the decision of the East London Employment Tribunal in Spencer v Lehman Brothers (in administration) and Others, which suggests that administrators can be held to be personally liable for the discrimination of employees of the business in administration.
Lehman Brothers went into administration on 15 September 2008. The administrators were all partners at PwC. On 17 September Ms Spencer went on annual leave, with her maternity leave to commence on 28 September. She was absent on maternity leave until the administrators terminated her employment on the grounds of redundancy. The administrators had asked Lehman's Head of Corporate Security to recommend members of his team for redundancy and he had done so, without consulting with any members of his team.
Ms Spencer claimed discrimination under the Sex Discrimination Act 1975 (SDA); she felt that she had been selected for redundancy because of her pregnancy/maternity leave. She claimed that PwC and the individual administrators were liable along with her employer because:
- they had knowingly aided the employer's discrimination; and
- the Head of Corporate Security, who had selected her for redundancy, had acted as the administrators' agent with their authority (therefore rendering the administrators liable as principals of their agent).
The employment tribunal decided that it was clear that her dismissal was because of a genuine redundancy situation and not because of her pregnancy or maternity leave. She had not therefore been discriminated against.
Although it was, therefore, not necessary to do so, the employment tribunal went on to consider to what extent PwC and the individual administrators would have been liable had there been any unlawful discrimination. It held that, had she been successful with her discrimination claims:
- PwC could not be held to be liable, as it was the administrators who were personally appointed to carry out the administration, not the firm; and
- in this instance, the administrators could not be said to have knowingly aided any discrimination.
However, it did hold that the individual administrators could be personally liable for an act of discrimination as principals of an agent who had committed an act of discrimination (that is, an employee who had selected a claimant for redundancy because of her pregnancy/maternity leave).
In reaching this conclusion, the employment tribunal took into account:
- Section 41(2) of the SDA, which provides that "Anything done by a person as agent for another person with the authority (whether express or implied, and whether precedent or subsequent) of that other person shall be treated for the purposes of this Act as done by that other person as well as by him"; and
- Paragraph 69 of the Schedule B(1) of the Insolvency Act 1986 (which defines the status and powers of administrators), which provides that "In exercising his functions under this Schedule the administrator of a company acts as its agent".
The employment tribunal held that the fact that the administrator was the agent of the company under the Insolvency Act did not prevent the administrator also acting as principal by appointing the company or some of its employees as his or her agent in relation to employment issues. In this case, by asking the Head of Corporate Security to select employees for redundancy and granting him unlimited authority in doing so, the administrators appointed him as their agent and became liable for any unlawful discrimination committed by him.
Impact on practitioners
- This decision is very troubling for insolvency practitioners. The finding that an employee of the company in administration could be an agent of the administrators rather than the company itself is not easy to reconcile with the established insolvency law position that the administrators are agents of the company. It is however, only an employment tribunal decision and it remains to be seen whether the higher courts would uphold it.
- The employment tribunal suggested that administrators could protect themselves by limiting the authority of the employee who is responsible for selecting other employees for redundancy. It is not clear how detailed this limitation would have to be, and legal advice would have to be taken in each case. It is also likely to be helpful to the administrator's position if they arrange for legal advice to be provided to the employee carrying out the selection process if they need it.
- Administrators should also be aware that they could also potentially find themselves personally liable for knowingly aiding a discriminatory act. This liability would however arise only rarely, where the administrators were aware of acts amounting to unlawful discrimination. The employment tribunal held in this case that it was perfectly legitimate and reasonable for the administrators to assume that Lehman's managers were acting professionally and within the law in carrying out the redundancy process and were therefore not liable for aiding the discrimination.