What should academy trusts consider before making a settlement offer to school staff?
Ensuring compliance with ESFA guidance on severance payments.
Entering into a settlement agreement with a member of staff can sometimes be in the best interests of an academy trust. They can provide a measure of certainty and closure where there are risks of a claim arising from employment or termination. However, there are significant compliance requirements which should be carefully considered before entering into settlement discussions.
Academy trusts should ensure that any offer of an agreed exit complies with Education and Skills Funding Agency (ESFA) guidance on severance payments set out in the Academy Trust Handbook. Making an offer to a member of staff before consulting this guidance can lead to unrealistic expectations, damaged staff and union relations, and a breakdown in without prejudice negotiations.
Academy Trust Handbook guidance on severance payments
Trustees of academy trusts must comply with the most recent Academy Trust Handbook (ATH). The trustees of an academy trust must ensure regularity and propriety in use of the trust’s funds, and achieve economy, efficiency and effectiveness – the three elements of value for money. These principles apply to decisions about any offer to make a payment to a member of staff which goes beyond their contractual or statutory entitlements.
Can a severance payment be justified?
The first question is whether there is a good rationale for entering into a settlement agreement in any particular case.
The ATH states that severance payments should not be made where they could be seen as a reward for failure, such as gross misconduct or poor performance. It states that a severance payment will only be justifiable in a gross misconduct case where legal advice indicates that the member of staff is likely to succeed in an employment tribunal because of errors in the procedure dealing with the case. In the case of poor performance, the guidance suggests that there may be some cases where a severance payment could be justified when the cost of settlement is favourable compared with the time and cost of working through performance management and capability procedures.
The settlement figure
£50,000 or more
Prior approval from the ESFA must be obtained before offering a severance payment including a non-statutory/non-contractual element of £50,000 gross. Trusts should ensure that plenty of time is allowed for this process as the ESFA will refer any application for approval to HM Treasury.
£100,000 or more / high earners
There is also a requirement to comply with HM Treasury’s Guidance on Public Sector Exit Payments by obtaining prior ESFA approval for severance payments where the exit package includes a non-contractual / non-statutory payment and totals £100,000 (gross) or more; or in any case where the member of staff earns over £150,000 gross per annum.
Any level of severance payment
Even where the level of severance payment proposed falls below the limits above, academy trusts must consider the following before making a binding offer to a member of staff:
- whether the proposed payment is in the academy trust's interests;
- whether the payment is justified, based on a legal assessment of the trust's chances of successfully defending the case at employment tribunal; and
- if the settlement is justified, the trust should consider the level of payment – this must be less than the legal assessment of the likely award in tribunal.
Academy trusts sometimes overlook the clear requirement set out in the ATH to apply the same scrutiny to payments over contractual and statutory entitlements as those where ESFA approval is required. This means that a written business case justifying the settlement figure should be prepared in every settlement case. The ESFA approval form should be referred to in order to frame the business case.
Any staff severance payments must be disclosed in the trust’s audited accounts, both as a total figure for the year and as individual payments.
It is important to note that all severance payments of any value must be approved in advance by the ESFA where a Notice to Improve has been issued.
Who makes the decision to offer a severance payment?
Responsibility for deciding on a severance payment ordinarily falls to the board of trustees. It is important to ensure that any decision to make an offer of a severance payment is properly made in compliance with the ATH and with the trust’s own 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.
The use of confidentiality clauses
The ATH also states that academy trusts must ensure that any confidentiality clauses in a settlement agreement do not prevent an individual’s right to make disclosures in the public interest – to make a “protected disclosure” or “blow the whistle”.
A term of a settlement agreement which purported to prevent such disclosures would not be valid. However, it is good practice to state explicitly in the agreement that it does not prevent the individual from making protected disclosures. It is also good practice to state that the parties are not prevented by the agreement from disclosing concerns to medical or legal advisers, the regulator, or law enforcement agencies.
Seeking timely advice
Academy trusts should seek legal advice at an early stage where one option being considered is a settlement agreement including a severance payment. This can provide the required legal assessment of potential claims along with a point of reference for deciding on the level of any payment. Before discussions with staff or representatives begin, advice should also be sought on the best approach to without prejudice negotiations and/or protected conversations about termination to reduce the risks to the trust.
How Wrigleys can help
The employment team at Wrigleys is expert in helping education sector clients to understand and manage the risks of employment-related claims and to decide whether a severance payment is justified in any particular case. We regularly provide legal assessments of potential risks and advise on the level of severance payments.
We work within the wider Wrigleys’ education and charities teams and so have in-depth understanding of how our schools clients’ governance, regulatory and industrial relations obligations impact on processes and decision-making.
If you would like to discuss any aspect of this article further, please contact Alacoque Marvin or other member of Wrigleys’ education or employment teams on 0113 244 6100.
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.