This agreement followed the Trust’s decision to ‘sacrifice’ hospital Chief Executive Rose Gibb after a health scandal. The Court of Appeal ruled that the agreement was not unreasonably generous and could not therefore be said to have been made outside the scope of the Trust’s authority.
Rose Gibb was the chief executive at Maidstone and Tunbridge Wells NHS Trust when in 2006 there was an outbreak of C. difficile resulting in a number of deaths. A Healthcare Commission draft report recommended that the Trust undertake a review in order to ensure that it was able to discharge its responsibilities to an acceptable standard. The Trust sought legal advice and although that advice made no adverse findings against Gibb, the Trust decided to terminate her employment before publication of the final HCC report with a view to compensating her for loss of office.
The parties, following receipt of legal advice, negotiated a compromise agreement providing for payments of about £75,000 in lieu of notice and compensation of around £175,000, in return for which Gibb agreed to the immediate termination of her employment and undertook not to pursue any claims and not to make any statement potentially damaging to the Trust. However before the payment was made, the Trust received orders from the NHS Finance, Performance and Operations Department to only pay the sum representing pay in lieu of notice and not the compensatory figure.
Gibb brought proceedings in the High Court for payment of the £175,000. The Trust defended its position on the basis that it had itself acted "ultra vires", i.e. it had acted outside the bounds of its authority) in agreeing the compensation payment, in that it was irrationally generous and based in part on irrelevant considerations.
The High Court dismissed Gibb’s claims, holding that the Trust had acted beyond its own powers of authority in agreeing to pay her £175,000 and the agreement was therefore made "ultra vires" on the basis that the payment was "irrationally generous". It stated that the Trust has improperly taken into account Gibb’s years of good service and her likely difficulties in finding new employment and had given insufficient consideration to the need not to be seen to reward failure. Gibb appealed.
The Court of Appeal overturned the High Court’s decision, rejecting the Trust’s argument that it had acted ultra vires. The Court looked at the reasons why such a sum had been offered to Gibb, which included the following:
- Damages for unfair dismissal and breach of contract
- Years of blameless service
- Imposing a vow of silence and thus saving the Trust any further public controversy
- Near certain adverse finding in a Tribunal
- Serious drain on management resources
- Costs
- Damaging affect on staff morale and performance
The Court stated it should not seek to reach its own conclusions as to what financial settlement might be appropriate in a given situation, which was a matter for assessment by the public body.
The Court decided that it was not irrational to offer some degree of generosity for the sake of good relations and mutual respect between employer and employee. It would only be if the figures were ‘inexplicable’ or ‘palpably inflated’ that the court would be justified in seeking an explanation.
This case has shown employers everywhere that it will not be ultra vires for an employer to offer more generous terms than that which the employee could potentially recover in an employment tribunal as part of a compromise agreement package. It is not irrational for an employer to have regard to the issues which may not be as easy to quantify such as the length of time it may take the employee to find alternative work. These considerations should be quantified with the assistance of legal advisers.
Chloe Brittain is a solicitor in the employment team at law firm Weightmans