Lessons to learn from the Blackburn Rovers and Berg ‘fiasco’

Oliver McCann, employment partner at Napthens solicitors, talks us through the valuable lessons which businesses can learn from the mistakes made by Blackurn Rovers as the High Court ordered it to pay £2.25m compensation to its former manager.

[caption id="attachment_23552" align="f-align-medium-right f-align-center" width="206"] Oliver McCann[/caption]

Henning Berg was appointed as Blackburn Rovers manager last October. He was in charge for only 57 days before he was sacked due to a poor run of results. He has successfully claimed compensation for the balance of the three year term of his contract, a total of £2.25m.

Following a meeting on October 26 or 27, Berg was advised that Blackburn Rovers wished to appoint him as manager.

A further meeting was arranged on October 31 in a local Blackburn hotel, between Derek Shaw, Paul Agnew and Henning Berg whereby they agreed the terms of his appointment. In particular, Berg alleges it was agreed that there would be a three year deal with full compensation if terminated early equivalent to the balance of the unexpired portion of the fixed term.

In a rush to get Berg appointed the finance director was instructed to draft an offer letter setting out the outline terms of Berg’s appointment and confirming that a service contract was to follow. It was not stated to be ‘subject to contract.’

A note was made by the FD, during discussions with Paul Agnew, that there was to be “no 12 month notice period” – apparently contrary to a request made by the Blackburn Rovers owners Venkys.

The offer letter was subsequently signed by Derek Shaw and Berg on November 1. Berg commenced his role but the parties continued with significant negotiations over the formal terms of a service agreement thereafter.

A service agreement was eventually signed a few weeks later which provided for a three year fixed period subject to the rest of the terms of the service agreement. There was an early termination provision which provided for immediate termination but on the basis that a fixed sum of compensation be paid to Berg for the balance of the fixed term based on an annual salary of £900,000.

Venkys argue that Derek Shaw was acting without authority and out of self interest, a defence raised which was quickly rejected by the High Court.

Ignore reports that suggest this was an unfair dismissal claim. It was not. To claim unfair dismissal the employee has to have the requisite length of service (which used to 12 months, but is now two years for those employed on or after April 6, 2012).

Such claims must be pursued through an employment tribunal and the maximum amount of compensation which can be claimed is limited, currently at £74,300. Berg did not have the required length of service and his claim for compensation far exceeds the amount an employment tribunal can award.

What Berg claimed was breach of contract and/or wrongful dismissal – in short, that his contract was terminated early but Blackburn Rovers failed to honour the liquidated damages clause for early termination.

The suggestion that Derek Shaw was acting without authority may or may not be correct. Whether it is or not is purely an internal issue between Blackburn Rovers and Derek Shaw. The reality is that Derek Shaw was appointed as director of Blackburn Rovers and as such, under S.40 of the Companies Act 2006, Berg was entitled to accept that Shaw had the power to bind Blackburn Rovers, even if Shaw was acting beyond any powers vested him in internally. Lessons to learn:

• Don’t rely on a mere offer of employment, particularly for senior appointments or fixed term deals. Ensure that any offer is subject to contract and follow the offer up with a full contract of employment which has been reviewed carefully to ensure it looks after the interests of the company.
• Make sure you have a signed contract setting out the full terms of the agreement before employment commences – here Blackburn Rovers arguably lost negotiating power by confirming Berg’s appointment and allowing commencement of the role before all terms were agreed.
• Always review the termination provisions in any contract of employment, but particularly for those in senior roles or where a fixed term contract is being offered.
• Consider a liquidated damages clause for early termination of the contract and ensure it is set at a level which is correct and accounts for the departing employees future earning capacity.
• Consider inserting alternative provisions which allow for early termination but with damages to be paid monthly and subject always to deduction of any future income received by the employee.
• For senior appointments ensure that there is a formal procedure where the terms of the contract are agreed by the board of directors before it issued.
• Ensure, where possible, that more than one director is required to sign the contract.