The following (long) article has been written by Eli Lederman, the former chief executive of the trading platform Turquoise, which was taken over by the LSE in 2009. In 2011, Lederman sued the LSE for unfair dismissal, a claim that Financial News says was conceded by the LSE prior to the hearing. Lederman also contested the LSE's Turquoise takeover, arguing that it constituted a 'Transfer of Undertakings' or Tupe. If an acquisition falls under Tupe, an individual becomes employed by the new company and employment terms and conditions apply. The judge deemed that this element of Lederman's claim was unfounded. In the article below, he argues that the tribunal system is unfair. We've highlighted the key points.
When they finally sealed the deal to control Turquoise, the LSE’s HR department sent a letter to terminate my contract as Turquoise CEO. That came as no surprise, given that a protracted deal process had turned contentious when I was excluded from negotiations. In the same letter the LSE took the “opportunity to remind” me that that during my notice period, I would,
“...have no contact whatsoever, either direct or indirect, with the Company’s clients or suppliers, any new employer’s clients or suppliers or any employee, officer, director, agent or consultant of the Company…”
Their note did jog my memory, but not as they might have intended. Going back to my signed employment agreement, I found that outside contact during ‘gardening leave’ was only restricted to the extent it was “in relation to the business of the Company or any other Group Company.” I raised this with Tim Wright, then head of HR for the LSE, who replied that he saw no difference in the clauses and that it didn’t matter anyway: as an employee and they could instruct me to do, or not do, whatever they wished.
If that’s how you want to handle this, I said, you’ll be hearing from my lawyers.
Reviewing the facts, my counsel saw a number of areas to pursue. Mostly technical matters of employment law, the arguments had to do with rights of staff under certain circumstances related to the exact nature of the transaction that had been executed. The most significant claims hinged on whether the LSE had simply acquired a stake in the company and continued to operate it separately, or whether Turquoise had been merged with the LSE’s own Baikal trading business.
In the weeks that followed I learned that other Turquoise staff were also pursuing legal remedies for similar claims, and I joined causes. It was always my hope to win a better deal for any of the staff whose careers had been affected, of which by my tally there were 19, plus or minus.
Having been privy to no deal details, how could we establish the exact nature of the transaction? That’s where the legal process called “Disclosure” comes into play.
When claims are filed in matters before the Employment Tribunal (ET), each side has a legal requirement to disclose to the other any relevant documents, even when they may be detrimental to one’s case. Contracts, emails, meeting minutes, calendar entries and other records are all subject to disclosure. For financial firms, subject as they are to data retention rules, the requirement to disclose emails can, in particular, generate reams of paper.
In fact, obligations vis-a-vis disclosure can be so onerous that banks and other large employers sometimes settle cases to avoid the perils associated with the process. Disclosure often opens other cans of worms, and failing to comply can itself be a problem. Deliberate concealment, in particular, can be a very serious offense and even a crime.
In the case of Lederman & Others v. LSE, however, the respondents disclosed practically no relevant information and, more remarkably, they did not disclose a single email either to or from anyone at any of the nine banks who had owned Turquoise. That struck me (and my counsel) as a rather extraordinary omission, especially given the salient relevance of communications with the sellers over the tedious six month deal process that had culminated in my dismissal. Not one to roll over, I spent £25k in the ensuing months on legal correspondence to force fuller disclosure. There was none.
None, that is, until the eve of the actual Tribunal hearing when the LSE and their highly paid legal team produced over a thousand pages of new material. Months past their legal deadline, these documents provided some germane information, but important gaps persisted. Total number of emails disclosed between the LSE and the banks: still zero. Total communications from LSE chief Rolet who had been personally involved throughout the transaction: a single one.
I turned to my counsel and asked whether the delay constituted obstruction, given that the other side had evidently flouted the rules. “It’s a common tactic,” he said, explaining that defendants (who are spending shareholder money) often do what they can to delay proceedings, intending to run down the clock in a war of attrition against plaintiffs (who are spending their own). “And there’s no punishment?” I asked. Seemingly exasperated, he just shook his head.
Would I like to postpone the hearing, the Tribunal asked, to review the new disclosures in more detail? Not necessary, thank you. The picture was coming into view and our prospects looked good: the crux of the LSE defense would be that there had not been a merger at all, and we were certain we could demonstrate there had been.
Yes, LSE executives conceded, the term “merger” had been used frequently throughout the deal process and, yes, the deal had been described that way in countless press reports but, they asserted, that was just language for laypeople to understand. Yes, the LSE had applied to the Office of Fair Trading to effect the merger, (which was the transaction the OFT reviewed and approved) but executives had anyway implemented a different deal. Yes, employees drifted back and forth between the two organizations; and, no, there were no rules to govern these staff members’ access to sensitive, confidential, member-specific information that each of the businesses would have acquired separately.
But the two companies were, the LSE insisted, independent.
When Tim Wright took the stand he repeatedly said “Turquoise” when he meant “Baikal,” and vice versa, and he had to correct himself multiple times, for which he apologized by citing the difficulty in keeping straight LSE’s “tangled web of corporate entities.” But he was clear on one point: when the deal closed, Turquoise and Baikal were not just separate entities, they were - and were intended to remain - “competitors.”
Turquoise’s new CEO David Lester then took his turn to testify and he repeated that claim, confirming unambiguously that Turquoise and Baikal were “competitors” when the deal closed, and it was only later, in a matter of days (after a six month deal process), that they decided to wind down Baikal to operate a single business.
Small problem. In the middle of the Tribunal hearing, the LSE had disclosed yet another cache of documents, amongst which we found a remarkable revelation: at the time of the deal closing, the two separate legal entities had the same boards of directors and the same CEO. That’s right, David Lester had been installed as CEO of both Turquoise and Baikal, and the two companies had the same directors. Competitors?
Called back to the stand to explain, Mr Lester said he thought it didn’t matter, “because Baikal was so small.”
So Baikal, we were asked to believe, was large enough to figure in the submission to the OFT, and it was large enough to potentially count towards millions in tax write-offs, and it was large enough to justify a “tangled web of corporate entities,” and it was large enough to merit appointing a CEO and a Board, but it was not important enough to that its CEO should disclose his role to the Employment Tribunal?
In his sworn witness statement, the legal purpose of which is to reveal facts about the witness and his bearing on the case, a document that ran 16 pages and was completed in privacy, without probing media or harsh lights or the pressure of a courtroom setting, Mr Lester listed many LSE roles and responsibilities (including being Turquoise CEO) but he somehow neglected to mention that he was also CEO of the other of two companies at the very center of the whole affair. With time to review the document and to consult colleagues and lawyers, he still didn’t think it merited mention? Unintentional omission, he testified.
And his colleague Mr Wright’s own sworn witness statement, itself running to 13 pages, and referring many times to Mr Lester and to the independence of the two companies, also failed to mention the vitally significant fact of Lester’s dual role, even though Wright would also certainly have known about it given the prominent part he played (by his own and other accounts) in the overseeing the deal’s HR implications.
It’s easy to see why the LSE and its executives would have wanted to conceal this information, given that it would weaken the assertion that the two companies were separate, which would weigh heavily on their employment case and maybe also weaken their position vis-a-vis their tax objectives. It is also, by any measure, highly embarrassing (if not damning) that anyone ever thought this was a good idea.
In what developed economy do two ‘competitors’ have the same CEO and same directors? Preposterous, and even more so when you consider that LSE executives exercise a role in overseeing standards of governance in the companies it lists on its exchange. And what of the other directors, the ones from the investment banks who maintained a minority stake in Turquoise, and who sat on both boards? Did they think this arrangement was so clever?
Even manifestly incompetent executives know that two companies in overlapping businesses cannot be “competitors” when led by the same CEO and boards. Testimony to the contrary was, at best, factually incorrect, and its consistency across witnesses would reasonably invite grave suspicion.
The point of this story is that the Employment Tribunal did nothing. They just moved on, as if pressed for time before their next scheduled hearing. And therein lies the problem: anyone watching the proceedings might have seen the ET’s passivity as signaling a resigned acceptance of shoddy compliance with clear rules. If, when faced with evidence of impropriety, the long arm of the law fails to lift a finger, it invites transgression from future litigants who, emboldened by lack of enforcement, will inevitably look to push the limits in conducting their own cases.
Pick and choose when and what you disclose? Give it a try! Withhold entire categories of email, say, between parties accessory to the matter? Have a go! Omit damaging bits from your witness statement? Why not! After all, errant witnesses may have to endure disapproval of ET panelists who gaze sternly over their bifocals while they lift their jaws off the table, but that’s apparently all they do. And compared to justice, that’s a small price to pay.
Returning to Lederman & Others, after testimony was heard the LSE’s legal team managed to settle with the last other employee holdout, thereby isolating judgement on my remaining claim. Although the LSE had conceded a major part of my own case before the hearing had even started, I was disappointed to lose the decision on that final matter.
But I was more disappointed that the ET’s decision failed to cite (if not censure) the dubious testimony, or the standards of the respondents’ witness statements or even the other side’s failure to comply with obligations for disclosure. For me, the legal matters of employment had long ceased to be as important as the higher principles relating to rule of law, the paramount importance of ethical standards and one’s responsibility to fully comply with rules when appearing before the judicial system.
Citing some flaw in the ET’s decision, my legal advisors considered the judgment wrong, and they presented me grounds to appeal, even offering their services for free (or on a “contingency basis,” to be precise). It was tempting but I figured if there were no rules enforced in Round 1, why would I expect any to apply in Round 2? I said thank you and declined.
For my part, I wanted to be done with it. It takes a toll when one goes toe-to-toe with a major corporation in a process that inches along under piles of boring correspondence and astronomical bills, and it hurts when a public company deploys its infinite resources to discredit you. But what really rankles is when an institution of government, as the ET is, reveals itself to be skewed to corporations rather than the citizens it is meant to protect.
All of which should serve as a cautionary tale to anyone considering making claims related to their employment or loss thereof. To the tens of thousands of City bankers and traders or back office staff or anyone else losing a job amidst the slowdown in the financial sector, my message is clear: consider other recourse but steer well clear of the Employment Tribunal. Until it enforces its own rules, the Tribunal will remain a mockery of itself, a fact that will be well known to several of the largest banks in the world.