MPs hit out at use of compromise agreements to gag employees

An influential committee of MPs has said it is “deeply concerned” about the use of compromise agreements and special severance payments to terminate employment contracts in the public sector.

A report by the Public Accounts Committee said: “The lack of transparency, oversight and proper accountability over their use has allowed taxpayers’ money to be used to reward failure and to avoid management action, disciplinary processes, unwelcome publicity and reputational damage.

“Confidentiality clauses within these compromise agreements may be appropriate in some circumstances, but they have been used inappropriately to deter former employees from speaking out about serious and systematic failures within the public sector, for example, in patient care or child safety.”

Government departments and their arm’s-length bodies must seek the Treasury’s approval in advance of making a special severance payment.

The PAC report, which can be viewed here, said that the Treasury – despite being responsible for approving special severance payments – did not know how many payments had been made across the public sector.

“It does not review the compromise agreements associated with the payments and could therefore not tell us how many agreements have been signed by public sector bodies and contractors to government, or whether these agreements have been used to ‘gag’ employees,” the committee said.

The PAC claimed that the lack of oversight by central government had led to inconsistencies in the use of compromise agreements, “with no one looking for trends that might provide early warnings of service failures.”

In the three years to March 2013, the Treasury approved 1,053 special severance payments totalling £28.4m.

However, the committee said the true number and value of payments across the public sector was unknown and likely to be higher as the Treasury did not approve payments by the likes of local government, the police, the BBC, and private sector providers of public services.

The committee said it welcomed the Treasury’s proposals for an improved system of central oversight, including changes to the civil service financial reporting requirements.

The Cabinet Office is meanwhile preparing guidance for the civil service on the appropriate use of compromise agreements and confidentiality clauses, and will introduce improved monitoring.

However, the PAC argued that the Treasury needed to take a more robust approach to the use of compromise agreements by the public sector and private sector providers of public services.

The PAC’s recommendations included:

• The Cabinet Office should issue guidance on the appropriate use of compromise agreements and special severance payments, the governance arrangements that should be in place to approve them, and who is accountable for their use.
• This guidance should explicitly: require public sector organisations to secure approval from the Cabinet Office for all special severance payments and associated compromise agreements where they relate to cases of whistleblowing; set out standard terms and conditions to be used in compromise agreements, including a provision in all compromise agreements stating that nothing within the agreement shall prejudice employees’ rights under the Public Interest Disclosure Act; require public sector organisations to secure approval from the Cabinet Office before departing from these standard terms.
• The guidance should set out how lessons are going to be learnt across government to prevent reoccurrence where a failure of process has occurred within an organisation.
• The Treasury should be responsible for monitoring activity across the wider public sector, and for defining what action will be taken where significant patterns or trends are identified.
• When the Treasury does approve special severance payments, it should ensure that its decisions are "based on the principles of economy, efficiency and effectiveness, not simply on cost alone".
• The Treasury should revise the reporting requirements in the Financial Reporting Manual to ensure the mandatory and consistent disclosure of special severance payments in public sector annual accounts.
• The Treasury should write to the PAC setting out what steps it will take to ensure wider public sector adoption of the guidance, "including full consideration of making compliance a condition of funding".
• The Treasury should make clear what it expects from private sector employers when they enter into contracts to deliver publically funded services.
• Effective safeguards should be introduced ensuring that the employees of private sector providers of public services, who use compromise agreements, feel protected when raising matters of public interest.

Margaret Hodge MP, Chair of the Committee of Public Accounts, said: “It is clear that confidentiality clauses may have been used in compromise agreements to cover up failure, and this is simply outrageous. We heard evidence of shocking examples of using taxpayers’ money to ‘pay-off’ individuals who have flagged up concerns about patient or child safety.”

She said a confidentiality clause in a compromise agreement was not meant to prevent legitimate whistleblowing but people who had been offered, or accepted compromise agreements had felt gagged.

“The end result here is the risk that public bodies reward failure just to avoid attracting unwelcome publicity,” Hodge claimed.