In a recent article on the Employment Law Worldview blog we looked at how a workplace grievance can lead to a defamation claim. The judgment, whilst primarily concerned with whether such a claim could be brought in the first place, also pondered the issues around raising a qualified privilege defence in such circumstances.

This is a key issue for HR professionals to consider, not just in dealing with internal grievances but also, for example, when making a report to the FCA about non-financial misconduct. Such misconduct, and particularly whether or not it should be reported to the FCA and in what terms, is a complex area, which is why our UK Labour and Employment team is sharing a series of blogs and videos to address those concerns. Similar issues arise in any circumstances where employers are under duties to report, e.g. certain parts of the education, sports, medical and legal professions.

This blog, however, considers the issue of what might happen if a report of misconduct to the FCA turns out not to be true. Does that leave the person complained about with a claim for libel against either his employer for reporting the matter to the FCA and/or against the employee who reported that conduct to the employer in the first place?

The short answer should usually be “no”, because regardless of whether such an allegation is or is not proved true, the defence of ‘qualified privilege’ should be available. 

Qualified privilege is a legal term used to describe a situation where a person (usually someone in a position of authority or trust) is permitted to make or relay statements that could be considered defamatory of another person to a third party because (i) they have a legal or moral obligation to do so and (ii) the third party who is receiving this information has a corresponding duty or interest to receive it.

In the world of HR, the most common example of this occurring is the provision of references for an ex-employee to their new employer. But it can also apply when an employee in a regulated environment is referred to HR for misconduct. In this situation, HR staff and other employees such as the individual’s manager/supervisor may be required to make or relay statements with regards to the conduct being investigated. Those statements could include potentially defamatory content about the employee in question.

In these circumstances it is important that those staff members can make such statements in the knowledge that they are covered by qualified privilege. If not, this would deter staff from relaying or making statements about colleagues due to a fear of being pursued for defamation. It would act as a brake on any attempt to foster a “speak-up” culture in the workplace. At an individual level, it might impinge upon the validity of the investigation process and any outcome reached.

The defence could also be available for reports of misconduct to the FCA. The rules for reporting reflect the issues that can arise: senior managers of FCA-regulated organisations who are responsible for reporting matters to the FCA, “must disclose appropriately any information of which the FCA or PRA would reasonably expect notice”, but the rules do not explain what is or is not appropriate to be disclosed, or what the FCA or PRA would “reasonably expect”. Confronted with a blank sheet of paper, a biro and some hotly-contested NFM complaints, where does the employer start? Some general principles:

1. you do not need to be able to prove the NFM to the criminal standard of beyond all reasonable doubt. If you believe that it more likely happened then not, i.e. on a balance of probabilities, that is enough;
2. if the accused employee contested the allegations, you should say so; similarly if he/she resigned before any settled conclusion on them could be reached;
3. to minimise the scope for allegations by the employee that the report was motivated by unlawful considerations (discrimination, retaliation, etc), it should be in measured, unemotional and neutral terms. Any suggestion that HR or Compliance positively enjoyed writing it is not a good look;
4. the report should not include reference to any complaints or allegations which the accused employee has not had the chance to rebut, or to matters which are prejudicial to the employee but of no relevance to his/her fitness and propriety; and
5. most importantly, the report should reflect a genuine and reasonable enquiry by the employer into the NFM alleged, not simply pass on unchallenged; the potentially malicious, vindictive, or discriminatory views of the complainant.

The qualified privilege defence is only available in respect of statements made without malice (i.e. without some indirect or improper motive such as knowing the statements made are untrue or making such statements with reckless indifference to the truth). They may in time turn out to be untrue as matters of objective fact but if you reasonably believed that they were true (where reasonable belief entails a reasonable investigation), then that is not fatal to your defence.

As the Judge pondered in the decision in Camacho v OCS Group UK, however, there is no way an employer can know when one employee reports the alleged NFM of another, whether or not that report is malicious. Furthermore, on the basis that there would be vicarious liability, it could be the employer that finds itself liable if it is. That is why the employer should take steps to establish its own reasonable belief in relation to those allegations before making any report to the regulators.

It should be noted, however, that it is for the claimant in a libel claim to prove malice – and it is rarely straightforward to prove someone else’s state of mind.

Conclusions

The key point to take from this is not to require a complainant to prove their case before it is even investigated, but to be aware that ‘privilege’ in these situations is not an absolute comfort blanket when making such reports. Some consideration needs to be given as to what is, in the FCA’s own words, “appropriate and reasonable” to report. HR professionals and compliance managers should first ensure that they have an honest belief in at least the potential truth of the statements made or relayed in respect of the employee in question.

In the next blog looking at potential defamation claims arising from the reporting of NFM, we shall consider this issue from a different perspective: an employee wants to sue for defamation and/or malicious falsehood: what damages can they expect?

Resource Centre Our dedicated Financial Services and Employment Resources webpage contains our video series and provides additional useful and supplementary resources.

If you missed them, read Part 1, Part 2, Part 3, Part 4 and Part 5 of this series.