Severance payments and employment rights go under the spotlight

Dated:

Although Sir Fred Goodwin’s six figure pension, received as part of a severance package, has been widely reported a recent case suggests that the tide may be turning. The High Court has recently decided that an NHS trust chief executive who was in charge of a number of hospitals during a superbug outbreak was not entitled to her severance payment of £175,000.

Rose Gibb was the former NHS Chief Executive of the Maidstone and Tunbridge Well NHS Trust in Kent. Between 2003 and 2007 when Ms Gibbs was in office there was an outbreak of Clostridium Difficile (often referred to as C diff) infection. C diff is a type of bacteria which can cause severe diarrhoea, ulceration and bleeding of the intestine and at worst, perforation of the bowel and ultimately death. During a two and a half year period over 1,200 patients who were treated at three of the Trust’s hospitals caught C diff, with 90 dying as a direct result of the infection.

Following the outbreak and other breaches in the standard of care at the Trust Ms Gibb was forced to resign from her £150,000 a year job in October 2007. An internal report was commissioned and although favourable to Ms Gibb it appears that pressure increased and the Trust asked her to step down in return for a severance package. However, as part of her severance package she received £75,000 pay in lieu of her contractual notice and £175,000 severance payment. Shortly after her resignation the Healthcare Commission published a highly critical report in the care and standards at the NHS Trust and stated that poor management was partly to blame. It found that patients were left to lie in their own excrement and that wards and washing facilities were filthy.

Following criticism from the public the health secretary, Alan Johnson, stepped in to block the payment. Compromise agreements are a way of validly stopping an employee from asserting their employment rights. Usually the employee agrees to not bring a claim in an employment tribunal or county court in return for a sum of money.

The compromise agreement forms a binding contract once the employee has received legal advice and both parties have signed the agreement. In Ms Gibb’s case it appears the compromise agreement contained a ‘gagging clause’ stating that she was not able to talk about her former employer. She claimed that she was entitled to the full payment in the compromise agreement on the basis that the NHS had been unjustly enriched by the gagging clause which meant that she had not been able to speak out about the inaccuracies in the Healthcare Commission’s report.

The high court ruled against Ms Gibb, ordered her to pay the Trust’s legal costs in defending the claim and denied her permission to appeal. The judge, Mr Justice Treacy held that the Trust was acting beyond its powers when it agreed to the severance payment of £175,000 which he regarded as unreasonable in the circumstances. He found that had Ms Gibb brought a claim that, contrary to her statutory rights, she had been unfairly dismissed then the most she would have received was £70,000 (plus her contractual notice). Therefore there was no business reason to offer her over £100,000 extra. The judge also ruled against any claim for this £70,000 as she had lodged her claim outside of the three month time limit for issuing claims at the Employment Tribunal. This loss was down to Ms Gibbs (or her legal advisors) and not the Trust.

This case may make it more difficult for bankers and MPs to receive a pay off for a quick departure after public outrage over their salaries and expenses. If they receive any payment which is not justified then they may find themselves without payment and the ability to enforce their employment rights.




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