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COOPER-DAVIDDavid 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?

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