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Severance payments and the academy trust: what you need to know - PART 1

17 May 2019

An agreed exit for school staff via a settlement agreement may be trickier than you think…

An agreed exit may seem like an easy option to smooth the departure of a member of school staff. Settlement agreements can provide peace of mind and value for money in some circumstances, but it is important that all parties go into the negotiation process with their eyes open so that expectations are not falsely raised and financial and governance obligations overlooked. Having the right information at your fingertips when opening off the record settlement negotiations with staff and their trade union representatives can save considerable time, money and conflict later in the process.

In this two-part article, we look at the key things which academy trusts considering severance payments should know.

Education and Skills Funding Agency (ESFA) compliance

Trustees of academy trusts must comply with the most recent Academies Financial Handbook (AFH). As set out in section 1.3.4 of the AFH, the trustees of an academy trust must ensure regularity and propriety and achieve value for money in the use of trust funds. It is sometimes overlooked that this duty falls on the trustees themselves, including the rules on severance payments. It is important to ensure that any decision to make an offer of a severance payment is properly made in compliance with the AFH and with trust governance procedures. If the decision is not to be made by the full board of trustees, there should be specific delegated authority from the board for the individual or committee in question to decide on the offer and agree final settlement terms.

We have been issued with a Financial Notice to Improve

Trustees should note that, when a Financial Notice to Improve is issued, the academy trust loses its delegated authority from the ESFA to make autonomous financial transactions. This includes its authority to make decisions about severance payments. In the case of a Notice to Improve, all severance payments must have approval from the ESFA.

How much will we pay?

The trustees' obligations with regard to severance payments appear at section 3.3 of the AFH. Where the trust is considering a payment (over and above contractual / statutory entitlements) of £50,000 gross, ESFA approval must be obtained. However, it is important that trustees are aware that their obligations do not stop there.

If an academy trust is considering making a staff severance payment at any level above statutory or contractual entitlements, the trustees must consider whether:

  • the payment would be in the interests of the academy trust;
  • the payment is justified in the light of a legal assessment of the merits of any claim and the costs of defending a claim; and
  • the level of payment is justified in that it would be lower than the potential court or tribunal award.

Where payments are proposed which fall below the £50,000 trigger then, whilst ESFA approval is not required, the AFH still expects academy trusts to apply the same level of scrutiny to the proposed payment.

The guidance states that severance payments should not be made where they could be seen as a reward for failure (for example in cases of gross misconduct or poor performance). However, this is to be balanced against consideration of the potential costs of a claim where there have been procedural errors in managing a disciplinary issue, or where the time and cost of taking someone through a performance management or capability procedure outweigh the costs of settlement.

These considerations and a cost analysis of the options available to the trust should be recorded in writing before the decision is made on whether to make an offer and on the level of the payment. Severance payments which have been made during the year must be disclosed in the trust's annual accounts, giving both a total figure and a figure for individual payments.

The use of confidentiality clauses

Readers may be aware of the recent media focus on non-disclosure agreements in employment contracts and settlement agreements which seek to silence employees' complaints, particularly about sexual harassment. As the law stands, such clauses are unlikely to be enforceable to stop someone reporting a crime or blowing the whistle but there is nothing to stop an employer failing to make this clear in an agreement. The Government consultation on the use of confidentiality clauses has recently closed and a response is awaited. Wrigleys' contributions to the consultation are available to view here.

Interestingly, the AFH already explicitly states at section 3.3.7 that trusts must ensure that confidentiality clauses in settlement agreements do not prevent an individual’s right to make protected disclosures or "whistleblow".

How this could all this work in practice – meet Mrs Best

Mrs Best is a MFL teacher who has been going through a capability process for some months due to poor performance in lesson observations and poor value-added data in her classes. The academy trust would admit that there have been some gaps in the process due to a lack of management time and resources. Mrs Best has submitted a formal grievance about the process and has raised sex discrimination allegations. She has complained that a man in her department has not been placed onto a capability procedure even though his results are just as poor as hers. She has now gone off sick with work-related stress. Her trade union approaches the trust to discuss an off the record settlement.

The trust consults its solicitors. The solicitors warn that there is a risk that Mrs Best could succeed in a discrimination claim and unfair dismissal claim (if she is dismissed) or a constructive dismissal claim (if she resigns before being dismissed).

The trustees consider the costs and management resources which would go into trying to continue the capability process and managing her sickness absence. They take into account the cost of covering Mrs Best's classes and responsibilities for the likely period of absence. They also consider the potential tribunal awards and the costs of defending a claim. Balanced against this, they consider the legal costs of settlement and the potential severance payment. They take into account the interests of the trust more broadly, giving thought to whether settling would encourage others to expect a pay off in cases of poor performance.

The trustees record these considerations, including the legal assessment, and decide to offer a severance payment which represents value for money in the use of public funds.

Part 2 now available here

The new tax rules on notice pay and how offering Mrs Best a "tax free lump sum" could seriously damage settlement negotiations. 

If you would like to discuss any aspect of this article further, please contact Alacoque Marvin or any other member of the education team on 0113 244 6100.

You can also keep up to date by following Wrigleys Education on X.

The information in this article is necessarily of a general nature.  The law stated is correct at the date (stated above) this article was first posted to our website. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.




Alacoque Marvin View Biography

Alacoque Marvin


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