Health executive wins appeal

Ed Madden, BL, looks at a recent Court of Appeal case in the UK, in which the Court allowed an appeal by a former senior health executive against a decision of the High Court that her severance package was unreasonably generous

On October 5, 2006, the Chief Executive of the Maidstone and Tunbridge Wells NHS Trust, Rose Gibb, ended her employment with the Trust under the terms of an agreed written settlement.
The termination had its background in outbreaks of the ‘superbug’ C. difficile at hospitals managed by the Trust, which led to the deaths of a number of people.
The Trust decided that the Chief Executive’s employment should be terminated prior to the publication of a highly critical report into the outbreaks by the Healthcare Commission, which was due to be published on October 10, 2007. The conclusions of the report were critical of the leadership of the Trust.
The terms of the settlement provided for a payment to Ms Gibb of £250,000, representing £75,427 in lieu of six months’ notice and a compensation payment of £174,573 (which approximated to one year’s salary).
For her part, Ms Gibb agreed to accept the immediate termination of her employment, and not to pursue any internal grievance or bring any contractual or statutory claim against the Trust. She also agreed not to make any statement potentially damaging to the Trust and not to disclose the substance of the settlement.
On the day after the publication of the Healthcare Commission report, Glen Douglas, who had taken on the role of CEO on Ms Gibb’s departure, received a letter from the Department of Health, instructing him to withhold the severance payment “until further notice”.
He complied with this instruction. Having been advised of this development, Ms Gibb issued proceedings in the High Court in which she sought to recover the full amount due to her under the terms of settlement.
Compensation
When the matter came on for hearing in the High Court in January 2009, the case focused on the compensation element of the settlement. By this time, Ms Gibb had received payment of the amount earlier agreed in respect of the six months’ notice period.
The Trust submitted that it was not obliged to pay the compensation element of the package on the grounds that the agreement it had entered into was “unreasonably generous” and ultra vires its powers. The High Court upheld this contention.
Ms Gibb appealed to the Court of Appeal, which heard the case in March 2010. The principal issue for the Court was whether the termination agreement was ultra vires and therefore unenforceable. In other words, had the Trust reached a decision so unreasonable, that no reasonable decision-maker could have arrived at that decision?
Giving his judgment in the case, Lord Justice Sedley said that “the making of a public sacrifice” to deflect press and political censure remained an accepted expedient of public administration in England. The Trust was aware that a damning report on its standards of patient care was shortly to be published by the Healthcare Commission.
The draft report, of which they had sight, included the following:
“The Healthcare Commission considers the findings of this investigation to be extremely serious, and to constitute a significant failing on the part of the trust, which failed to protect the interests of patients…”
In the light of such criticism, the sacrifice most likely to appease “the deities of Whitehall and the media” was the Trust’s Chief Executive, Ms Gibb. The fact that she personally had not done anything to warrant dismissal was a problem, but not an insuperable one. Provided that the Trust was willing to pay the necessary compensation, she could be dismissed without any notice and without good cause.
A vow of silence
The judge said that by accepting a compensation package that included “a vow of silence”, Ms Gibb would be sparing the Trust a public controversy around where responsibility for the scandal actually lay.
They would also be spared the near-certainty of an Employment Tribunal finding of unfair dismissal and a serious drain on management time and resources. There was also the potential damaging effect of all of these matters on staff morale and performance at a time when the Trust needed a new beginning.
This was the background to the “bizarre legal situation” now facing the Court. The Trust had been directed by the Department of Health to renege on its own agreement.
The reason for the direction was that Government ministers wanted to be able to announce that the termination agreement was being blocked. The Trust, when sued by Ms Gibb for failing to honour the agreement, had found itself compelled to deny its own power to enter into that agreement.
The judge said there was nothing irrational about the severance payment that the Trust agreed to in respect of Ms Gibb. On the scale of severance payments generally – not only in the private sector, but also in parts of the public sector – £250,000 was not outlandish compensation for the arbitrary termination of a career that it was unlikely Ms Gibb would be able to resume.
The Trust had been trapped “between a rock and a hard place” by interference on the part of the Department of Health, which had exposed it to substantial legal costs.
Central government, which would be picking up the cost, might have done better to recognise that the Trust, in reaching the agreement with its Chief executive, “had been making the best of a bad job”.
That bad job had been the decision “to sacrifice on the altar of public relations” a senior official who had done nothing wrong.
Lord Justice Sedley referred to the fact that such blame as the Healthcare Commission report allocated was subsequently accepted by the board members of the Trust, all of whom resigned following publication of the report. There had been no good reason, therefore, to dismiss the Chief Executive.
The money spent on compensation and costs could have been better utilised in improving hygiene and patient care in hospitals. The Court went to allow the appeal.
Reference: [2010] EWCA Civ 678