Does shopping around to get the best payout really benefit the employee?

The $1.4bn sex discrimination claim brought against Dresdner Kleinwort Wasserstein by six female bankers is a nightmare for the bank, but a dream come true for the press.

The claim hit the headlines for the size of award being claimed (£800m), and for the salacious allegations of strip club visits and prostitutes in the office – all of which the bank vociferously denies.

Away from the front-page headlines, the case raises two subtle issues. The first is ‘forum shopping’ – the tactic of bringing a legal action in a country where the rewards seem greater, or the risks lower; the second is the question of whether the huge awards being discussed ultimately bring about a fairer climate for employees.

Dresdner wants the claim by UK banker, Katherine Smith, to be dismissed on the grounds that she was based in London. The bank says the US Equal Pay Act and New York State Human Rights law do not apply to her as a London-based employee. Detailed jurisdictional arguments are likely to ensue.

Forum shopping is unusual in employment law claims as the laws vary between countries, and there normally needs to be some clear connection between the chosen forum and the employment relationship. So, for example, a US-based employee who is sexually harassed by a colleague during a business trip to Europe should be able to pursue a claim in the US, or may bring proceedings in the European country where the incident occurred, although this would not be permissible under the law of every European country.

In the UK, tribunals exert extra-territorial jurisdiction in the field of discrimination, so that if an act of sexual harassment occurs while a UK-based employee is abroad, the employee could bring a claim in the UK.

A further complicating factor is the question of whether the applicable law would be that of the country in which the proceedings are brought, or the country in which the employee habitually works.

Smith is not the first employee in the UK to lodge an employment complaint in the US, where typically awards of compensation are significantly higher. On the facts that have been reported, it is not immediately obvious that there is a connection between her complaint and the bank’s New York operations.

But regardless of that, are such record-breaking claims for compensation good for the workforce?

There is an argument that such vast awards will concentrate the minds of HR managers, and may ultimately lead to fairer workplaces.
But while such cases can create sensational headlines, they may also foster completely unrealistic expectations of what a complainant may recover in a successful discrimination claim – the median award for a sex discrimination complaint in UK tribunals last year was £6,235.

Employees have pursued claims for enormous sums in the UK – for example, investment banker Stephanie Villalba’s claim for £7.5m against Merrill Lynch. She was actually awarded 60,000, although the case is still subject to appeal. Such cases are rare, but they attract a lot of attention and fuel concerns about the development of a compensation culture similar to that in the US – something that UK courts and tribunals have so far tried to resist.

Of course, some large claims encourage employers to review their equal opportunities policies, particularly with regard to sexual harassment. A policy that is comprehensive, properly communicated to staff and managers, consistently applied and effective in penalising breaches of policy, is likely to deter claims. In addition, such a policy will provide the best defence if a claim is brought.

But such policies should already be in place within any organisation that values its employees and wants to hold on to them. The possibility of rare but stratospheric compensation claims should not be the decisive reason for their introduction.

Keith Potter is an associate in Stevens & Bolton’s employment department

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