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Hush money?

“We are deeply concerned about the use of compromise agreements and special severance payments to terminate employment contracts in the public sector”. So begins the summary of the recently published report of the Public Accounts Committee into confidentiality clauses and special severance payments. Public sector organisations be warned!

According to the Report, the Treasury alone approved a total of 1,053 special severance payments totalling £28.4 million in the three years to March 2013, and the Committee noted that the Treasury’s mandate to approve does not extend to organisations such as the BBC, local government, the police etc, nor to private sector bodies that provide public services. So the total value of severance payments across the whole of the public sector is likely to be much much higher.

One concern of the Committee, and it is a concern that has been shared and highlighted by sections of the media, is the extent to which compromise or settlement agreements have been used by organisations to cover up failure and prevent individuals from blowing the whistle, particularly within the NHS but certainly not limited to that sector. In law, confidentiality provisions in contracts that preclude an individual from blowing the whistle are void, and the Committee acknowledges this, but it takes the view that despite that, “people who have been offered, or accepted compromise agreements have clearly felt gagged”. It recommends that in future severance payments, and the agreements that govern them, by public sector organisations in whistleblowing situations must have the approval of the Cabinet Office. It also recommends that the Cabinet Office guidance make clear that settlement agreements contain as standard a provision which indicates that nothing in the agreement prejudices the rights of the individual in whistleblowing legislation.

But the concerns of the Committee are wider than that, extending to the use of taxpayers’ money to “reward failure and to avoid management action, disciplinary processes, unwelcome publicity and reputational damage”. The report criticises the Treasury for focusing primarily on the consequences of facing Tribunal claims in deciding whether to approve severance payments. So, public sector organisations that require Treasury approval for severance payments can expect the hurdle for that approval to be raised in future, if the Committee’s recommendations are implemented. And private sector organisations are not exempt – those that enter into contracts to deliver publically-funded services should be subject to safeguards that ensure that their employees are not prevented from speaking out, according to the Report.

This is all well and good, or is it? Yes, public sector organisations have a responsibility to spend public money in a sensible and proportionate way, and no, public money should not be used to reward failure or to silence those with genuine concerns that are in the public interest, but few public sector employers are likely to argue with that. What public sector employers should be able to do is to take sensible and swift commercial decisions to issue severance payments, on terms that include the usual contractual safeguards (including confidentiality regarding the terms of the agreement), in order to avoid Tribunal claims where those are likely to be a significant drain on time and money and when it is appropriate to do so. It remains to be seen whether the future tightening grip of Treasury and the Cabinet Office will hinder that in practice. I fear it will.

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