Council agrees £209k settlement with chief executive to resolve disputes

Northumberland Council has reached an agreement with its chief executive, Daljit Lally, “to settle all outstanding disputes as between the county council, its members and officers and the chief executive, including the withdrawal of any and all complaints that any of the parties have against each other”.

The settlement saw Lally, who took over as chief executive in 2017, leave the council at the weekend (31 July). 

Under the agreed settlement she will receive £209,000 – roughly the equivalent to one-year's full-time salary for the role, the council said.

Mark Greenburgh of law firm Greenburgh & Co, who advised Northumberland on the settlement, told the full council meeting last week (27 July) that there was “no prospect at all” of the chief executive agreeing to resign, adding: “She believes she has done nothing wrong”.

Council Leader Glen Sanderson said: “I am pleased we are now able to move on. This is the first step in our journey to restructure and recruit a new senior officer team as well as providing some certainty for our excellent staff.

“I felt it was important to hold this meeting in public to ensure complete transparency around this matter. We also feel today’s decisions provide best value for the taxpayers of the county.” 

A report presented to councillors on Northumberland’s Staff and Appointments Committee, a copy of which was provided to the full council, had noted that there were longstanding issues between the chief executive and the council.

In the summer of 2020 Lally was suspended from her duties. A disciplinary investigation commenced but was terminated on legal advice, and she returned to work.

The chief executive made a significant number of complaints under the dignity at work, grievance and member code of conduct policies, and commenced a claim in the Newcastle Employment Tribunal alleging detriments arising from alleged ‘whistle-blowing’.

Meanwhile in February 2022 Cllr Sanderson commissioned an external corporate governance review of the council. 

Local government troubleshooter Max Caller subsequently found that Northumberland had “lost its way over a number of years to the extent that leadership at both political and managerial levels is distracted, and no longer focussed on external issues but involved to an unhealthy extent on internal battles”.

He also said: “It is common ground with your chief executive and all the group leaders I have spoken to, that the council needs to move on and your current chief executive is not the person who is best able to carry that forward.”

The Caller report was published on the same day that the council separately asked its Employment Appeals Committee (EAC) to try to get to the bottom of how unlawful spending took place on a healthcare consultancy business and a £40,000 per annum allowance for its chief executive, leading to the issuing of a s.114 notice.

The report to the Staff and Appointments Committee revealed that the committee had written to the chief executive seeking her comments in relation to her unlawfully paid allowance and whether and to what extent it should be repaid to the council. The council’s Employment (Appeals) Committee had also written to the chief executive to invite her representations in relation to matters in the Caller Report and S.114/114A report.

The Staff and Appointments Committee had also received reports regarding the health and well-being of the chief executive. “The Committee will recall that the Chief Executive has been in poor health for much of this year and has been in receipt of a medical certificate continuously since March 2022. She has been referred to the Council’s external Occupational Health Service and regular updates provided to the Committee.”

The last report from Occupational Health included advice that the chief executive would be unfit to resume her duties for the foreseeable future.

At a meeting on 20 June 2022 the Staff and Appointments Committee received written advice from James Goudie QC of 11KBW on the scope for settlement of the claims.

A mediation subsequently took place on 18 July, at which Greenburgh & Co represented the council. Heads of terms were agreed which would terminate the employment of the chief executive on the grounds of her ill-health and provide for a comprehensive settlement “of all of the various claims and counter claims between the Council, its officers, its members and former members, and the Chief Executive”.

James Goudie QC subsequently confirmed that the terms met the council’s legal obligations and that the contents of the report were consistent with the council’s Best Value obligations and, that the contents provided sufficient information of the options available to enable members to make a lawful decision.

On the settlement figure, the overall value of which is expected to be between £309,000 and £359,000, the report to the Staff and Appointments Committee said: “Whilst this is a substantial sum, it must be remembered that the chief executive is on a high salary, and that pursuing any other option is likely to be costly, time consuming and sapping of both member and officer resources.” 

It noted that if there were to be a disciplinary investigation, it would be necessary to appoint an independent investigator, for the investigation to take place, a report to be made, a committee to hear the evidence, and a separate independent panel to make a recommendation to full council. “That process could well take 5-6 months, during which time the Council will be paying the Chief Executive's salary in any event and incurring substantial legal costs.”

The report suggested that pursuing an ill health dismissal would be quicker “but would still result in the payment of notice and accrued holiday, and without the settlement of the Tribunal claims much of the advantage, of ‘clearing the decks’ and allowing the Council to move on, would be lost”.

Law firm Mills & Reeve, which was representing Northumberland in the Employment Tribunal, had meanwhile estimated that the costs of taking the case to trial was in the region of £362,000 to £398,000 based on a 5-week hearing. “Costs are not usually recoverable in the Tribunal, so even if the Council were to successfully resist all of the claims, it would still be left with a substantial legal bill,” the report noted.

Advice from Nigel Giffin QC, also of 11KBW, on recovery of the international allowance and the merits of that case, had suggested that the arguments on restitution were “more finely balanced than might at first appear to be the case”.

The report said: “On the one hand, it could be argued that the Chief Executive as Head of Paid Service had responsibility for ensuring that her allowance was properly approved.

“On the other, senior members were aware that an allowance was being paid and the expenditure appeared in some form in the published accounts in each year from 2018 onwards. The extent to which senior HR and Governance officers at the time were aware is as yet unclear but remains subject to the further investigation that the Audit Committee is supervising.”

Mark Greenburgh also advised that the costs associated with litigation to recover the full value of the international allowance would be high – “potentially of the order of £100,000 - and that Chief Executive would have a reasonable prospect of defending at least part of any such claim meaning that the Council might only recover 60% of the amount claimed (£107,000),” the report to the Staff and Appointments Committee added.

“For these reasons, it is the view of your officers that recovery of £79,000 (approximately 44%) of the allowance paid to the Chief Executive as part of an overall settlement is both more cost effective than pursuing litigation and carries less risk to the Council.”

The report to the Staff and Appointments Committee said that taking all considerations in the round, it was the unanimous advice of officers that the proposed settlement represented the best outcome for the council and one which could be justified on value for money grounds.

At an extraordinary meeting of full council last week (27 July) it was also agreed that interim Deputy Chief Executive Rick O’Farrell would take up the role of interim Chief Executive.