Facts
Rose Gibb was employed by Maidstone and Tunbridge Wells NHS Trust as chief executive from November 2003. She was entitled to six months’ notice under her contract of employment. In 2006 there were outbreaks of the superbug C.difficile at hospitals managed by the trust, which led to a significant number of deaths and widespread publicity.
The Healthcare Commission (HCC) investigated. Its final report in October 2007 was highly critical and recommended that the trust’s board should review the leadership of the trust in light of significant failings. Before the final report was issued, the trust’s legal advisers suggested that it should seek a negotiated settlement for Gibb to leave, but that if a settlement could not be achieved she should be dismissed. The legal adviser said that a total settlement of 12 months salary and pension contributions would be the norm for this type of case.
On 28 September 2007, the trust’s remuneration committee decided to terminate Gibb’s contract. Following negotiations a compromise agreement was executed which provided for a payment of about £250,000. However, on 11 October 2007, the NHS instructed the trust to withhold the severance payment. In 2008, Gibb was paid about £75,000 in respect of her six-month notice period. She brought a claim in the High Court claiming that she was entitled to the further sum of £175,000 under the terms of the compromise agreement, or alternatively that she was entitled to damages.
Decision
The High Court held that the compromise agreement was unenforceable because the NHS trust had acted outside its powers in agreeing an “irrationally generous” compensation payment. The trust was determined to dismiss Gibb even if no agreement could be reached and it was imperative from their point of view that dismissal should take place before the publication of the HCC’s report. The trust hoped to terminate Gibb’s employment with a clean break and a confidentiality clause, and would also have had in mind the cost of proceedings.
The Trust could reasonably and properly proceed on the basis that it would be liable for six months’ notice pay and the maximum unfair dismissal award. The trust would reasonably have assessed liabilities at approximately £145,000. However, the Trust’s approach to the question of additional legal and management costs was flawed because no proper financial analysis was done. The trust also took into account factors such as previous good service and the length of time it would take Gibb to find employment which did not represent payment for or in respect of loss of office. Therefore the compromise agreement was ultra vires (outside its powers).
The court also found that Gibb had no equitable claim for damages against the trust. The trust had not been enriched at her expense. It had breached the implied term of trust and confidence in its inaccurate representations about its power to enter into the compromise agreement, but this breach fell within the exclusion that employees cannot seek compensation arising from the manner in which they are dismissed through a claim in the civil courts.
Implications
This decision highlights the possible consequences of agreeing to compensation payments over and above those to which an employee may be entitled under their contract or statute. It is common for employers to offer increased compensation to senior executives in order to achieve a swift exit, induce the employee to enter into a compromise agreement and agree not to bring claims against or make derogatory comments about the employer. However, recent publicity surrounding severance packages paid to senior managers in the financial sector has resulted in intense scrutiny of exit arrangements and a backlash against “rewards for failure” in the private as well as the public sector.
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Gibb was refused leave to appeal to the Court of Appeal.
Susan Fanning, partner, DLA Piper
