David Cooper: Public sector Compromise Agreements have their place - but it should be in the public eye

David Cooper is a solicitor and legal & political fiction author, and occasional blogger. Follow David on Twitter. 

Confidentiality terms in Compromise Agreements, the legal documents commonly used when an employment contract is brought to an end, have come in for heavy criticism recently. What are these “gagging clauses” all about, and might there be scope for a simple reform?

Step back just over twenty years, and we find that the right to make a claim in the Employment Tribunal was virtually sacrosanct. Employers who genuinely wanted to settle disputes could not do so without the risk of a claim, which would waste further time and costs even if the outcome for the employee might be academic or Pyrrhic. ACAS could assist up to a point in claim avoidance, but the process was cumbersome.

Then came the Trade Union Reform and Employment Rights Act 1993, enabling a legally binding clean break via a Compromise Agreement. The employee would have to take independent legal advice and be made aware that the Agreement extinguished the right to make a tribunal claim. The employer would usually pay for the advice.

For clarity, TURERA did not anticipate widespread use of confidentiality clauses in Compromise Agreements. But it was only natural that a well advised employer would see their advantages. In a multiple redundancy situation, no boss would want to be at risk of loose talk in the pub about pay offs that might lead to higher demands from the next ones in line. Nor would a company want to strike a deal to settle a live unfair dismissal claim without admitting liability, thereby avoiding the expense and publicity of a tribunal hearing that it was still confident of winning, only to find their ex-troublemaker going off to the papers.

So there is nothing inherently objectionable about the use of Compromise Agreements, nor indeed confidentiality clauses. There are common sense exemptions for the employee’s immediate family and professional advisers. There will usually be a financial incentive for the employee. And on the employer’s side, given the irrecoverable legal costs in fighting a claim, there will always be a case for sacrificing principle and striking a deal instead, especially if it can be kept quiet.

Now we’re in sight of the real mischief. It goes without saying that small and medium sized firms will not want to overpay to settle employment disputes. The occasional report of “reward for failure” in the large private business arena, often reflecting long notice periods in senior executive contracts, will attract cries of outrage – very properly in many cases - but the major institutions who own most of the companies’ equity will scarcely be troubled, and any disgruntled private investor can readily sell out in protest.

But it’s far less excusable in the public sector where other people’s money is involved. All too often we hear of a culture involving inexplicable eye watering pay offs when chief executives (once we called them town clerks) hop from authority to authority. Or when there has been a catalogue of errors and the buck evidently stops with no one other than, debatably, a sacrificial scapegoat. At a price. Or indeed when it is felt that an NHS whistleblower must be silenced.

Tricky one, the last of those. Current NHS guidance (“The Use of Compromise Agreements and Confidentiality Clauses”, April 2013) suggests that any confidentiality clause should still make it clear that the ex-employee’s rights either under the Public Interest Disclosure Act 1998, or generally to raise concerns about patient care and safety, shall not be prejudiced. But in practice this will sit uneasily alongside another common clause, namely that any breach of the Agreement shall leave the employee liable to repay the severance payment as a debt.

Occasionally the cat does slip out of the bag. Remember the Maidstone hospitals superbug scandal from 2007 – 1,200 cases and 90 deaths? Just before a highly critical report was due to be published, the Maidstone NHS Trust decided that it was essential to rid itself of Rose Gibb, the Chief Executive. They chose negotiated severance via a Compromise Agreement rather than disciplinary action. Upon hearing of the severance payment on the day the report was published, the then Health Secretary Alan Johnson blocked it. The pure notice pay element of the deal was later conceded. Ms Gibb sued for the compensation element. She lost in the High Court, on the grounds that the Trust never had the power to offer the “irrationally generous” sum, but the Court of Appeal took her side and reported the actual figures. Notice pay, £75,000. Compensation, £175,000. You don’t have to be a Maidstone superbug victim or a relative to wonder why the Trust offered those sums in the first place, if not simply to brush the failings under the carpet along with the superbugs.

However, this is not to say that public sector Compromise Agreements are inherently objectionable. There may be sound reasons for not wanting to run a disciplinary process that would be fraught and uncertain, or to defend an unfair dismissal claim in the notoriously uncertain forum of the tribunal. But equally, let’s also not forget that it is far too tempting to use other people’s money expediently.

So here’s a suggestion. Douglas Carswell and others have recently suggested that we should insist on “transparency from those paid out by the system” in the context of benefits. Why not go one step further and make it mandatory for all public sector Compromise Agreements involving termination payments of (say) £50,000 or more to be published online, after blacking out the recipient’s home address? To make gagging clauses fall into oblivion in this way might concentrate the minds of NHS Trusts, local authorities and their kind upon ensuring that generous severance packages involved proper use of taxpayers’ money. And what reasonable objection to online publicity could be raised by a willing recipient of a negotiated public sector severance payment?

One last point. Under the recently approved Enterprise and Regulatory Reform Act 2013, Compromise Agreements are on an as yet unspecified date to be renamed “Settlement Agreements”. Well, three cheers to whichever here-today-gone-tomorrow minister decided to push through such a needless, pointless, unwanted change that will lead to the waste of precious professional time in amending literature, precedents, websites and so on, without any consequential benefit for employees facing the need to consider termination offers. At least it will enable the political class to assert that they have done something about Compromise Agreements. Would they please consider doing something else more useful?