An employer can not plead its own irrationality in seeking to amend a compromise agreement

Gibb v Maidstone & Tunbridge Wells NHS Trust [2010] EWCA Civ 678

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14/08/09
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30/06/2010

  • A public body relying on its own irrationality in financial and management decisions can not use this as a defence to an employee's tribunal claim.
  • A court may only intervene in an agreement where the workings are plainly inexplicable.
  • The High Court was wrong to in its ruling that the compensation in the compromise agreement was ultra vires. The judge shold not have substituted his own ideas as to what financial prudence required.
  • The High Court (Treacy J.)was wrong to conclude that the Trust's costs savings when agreeing to a compromise agreement a rather than face a claim for unfair dismissal were illusory. The employee's years of service and the difficulties in finding new employment meant the agreement was not irrational.

When Chief Executive of an NHS Trust Ms Gibb presided in 2006 over an outbreak of C. difficile within the Trust’s hospitals. Although patients died the Healthcare Commission investigation did not find in its draft report grounds for removing Ms Gibb from her duties. This was despite significant leadership failings having been found within the Trust.

After the intervention of the Strategic Health Authority (SHA) the NHS Trust changed its decision on the removal of the CEO. For her to go quietly i.e. agree to immediate termination of her employment and also undertake to not pursue any claims or make potentially damaging statements about the Trust, the Trust reached a compromise agreement with Ms Gibb amounting to £75,000 in lieu of notice with additional compensation of £175,000.

The Department of Health then forbade the Trust to make the agreed payments.

Ms Gibb sued the Trust which defended its behaviour alleging that it had acted ultra vires (beyond its powers)in agreeing to an irrationally generous compensation payment. Ms Gibb's claim included an alternative of a restitutionary remedy for having given up her claim for unfair dismissal and/or damages for breach of the employment contract in that the Trust broke its duty of trust and confidence to its employee.

The Claimant failed in the High Court (Treacy J.)which although accepting that the Trust had breached its contract there could be no remedy as losses accruing from the manner of dismissal meant that the facts fell within the Johnson v Unisys ‘exclusion area’.

The Court of Appeal overturned the High Court judgment and found for Ms Gibbs.

That the Trust sought to exploit its public law wrong to avoid obligations in private was deprecated by the Court of Appeal and rejected the argument that statutory compensation for unfair dismissal would have meant the Claimant receiving less than that agreed upon between the parties.

In rejecting the Trust's irrationality argument that it should not have taken into account Ms Gibb's long record of sevice, Laws LJ said, “the constraint of rationality will not close the door on some degree of generosity for the sake of good relations and mutual respect between employer and employee: not only for the sake of the employee in question, but it may be also for the employer’s standing and reputation as such.”

Sedley LJ also noted 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.”

A claim for unjust enrichment failed partly because of a lack of precedent for this. In any case the Court of Appeal denied this had happened as the value of the restitutionary claim could extend to the confidentiality requirement as well as her foregoing an internal grievance.

Laws LJ said that any breach of contract established did not fall within the Johnson exclusion area. Ms Gibb had entered into the compromise agreement before her emploment was terminated. That the loss followed the termination did not mean that the loss was caused by the termination.

The transcript of this case follows:-  

Gibb v Maidstone & Tunbridge Wells NHS Trust [2010] EWCA Civ 678


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