Compensation payments for senior managers who leave following major service failures

The issue of compensation for senior public sector managers dismissed in circumstances where there has been a major failure in a service for which they are responsible is a complex one, and it does not seem as if court decisions are providing any clear guidance on how such matters should be handled.

In the “Baby P” case, the High Court rejected a judicial review challenge by former London Borough of Haringey Director of Children and Young People’s Services, Sharon Shoesmith, against the Council’s decision to dismiss her without compensation. (Although it also indicated that she is entitled to pursue a separate unfair dismissal claim in an employment tribunal, where the outcome might be different).

But, in another high profile case, the Court of Appeal has now overturned the High Court’s view that a £250,000 severance package paid to Rose Gibb, the former chief executive of Maidstone and Tunbridge Wells NHS Trust, was irrational and ultra-vires.

Rose Gibb, the former chief executive of Maidstone and Tunbridge Wells NHS Trust, had previously lost her High Court battle to secure the large severance package she had been promised as part of a Compromise Agreement, after she resigned from her job just days before a report on an outbreak of clostridium difficile, which caused the deaths of 90 people. In April 2009, the High Court ruled that the agreement was so unreasonable as to be void. Furthermore Ms Gibb was ordered to pay the Trust's legal costs and was refused permission to appeal.

However, she subsequently succeeded in obtaining leave to appeal from the Court of Appeal itself, and her appeal was heard in March of this year.

The Court of Appeal has now allowed her appeal, stating, amongst other things, that the Trust had a range of financial considerations in mind when it agreed the Compromise Agreement, and that there was no basis for assuming that, had the matter instead gone to employment tribunal, the Trust would have offered only the statutory maximum to settle. Equally, there was every relevance in the fact that the Trust had, quite rightly, taken account of Ms Gibb's many years of good service and the time it would take her to find new employment when agreeing the sum in question. It had therefore not been shown that the Compromise Agreement amounted to "irrational generosity" and on this point the appeal was allowed. The Court said that “On the scale of severance payments not only in the private sector but in parts of the public sector, £240,000 was not on its face outlandish compensation for the arbitrary termination of a career which it was unlikely Ms Gibb would be able to resume or resurrect.”

It will be interesting to see what happens to the employment tribunal case which Sharon Shoesmith is understood to be bringing. If she succeeds with an unfair dismissal claim and wins the maximum compensation following protracted and expensive legal proceedings, it may be argued that the London Borough of Haringey would have been better off, at least from a financial perspective, in pursuing the Compromise Agreement route in the first place. It would appear from the Gibb case that, depending on the scale of the payment, such an Agreement would not necessarily have been ultra vires, notwithstanding the High Court’s rejection of her challenge to dismissal without compensation.

Local authorities will hope that there is some greater clarity on how such cases should be handled before they are faced with a similar situation. Fortunately, they remain rare.

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