Select Committee on Public Accounts Minutes of Evidence


APPENDIX 2

PAC REPORTS THAT HAVE REFERRED TO CONFIDENTIALITY CLAUSES IN TERMINATION AGREEMENTS (PAC 1999-2000/184)

MEMORANDUM BY THE NATIONAL AUDIT OFFICE

  1.  At the Committee's hearing on the Public Trustee Office Accounts 1998-99 on 17 April, the issue of confidentiality (or gagging) clauses in officials' termination agreements was discussed. This briefing note sets out the previous occasions the Committee has pronounced on confidentiality clauses, and the Government's response to the Committee's recommendations.

  2.  The Committee has published three reports in recent years that have criticised the use of confidentiality or gagging clauses in termination agreements. The background to each case, the Committee's views and the Treasury Minute response are set out below.

SEVERANCE PAYMENTS TO SENIOR STAFF IN THE PUBLICLY FUNDED EDUCATION SECTOR: 28TH REPORT 1994-95

Background

  3.  The Committee investigated the severance payment that the University of Huddersfield had agreed to pay to its former Vice Chancellor resulting from the early termination of his contract on 31 December 1994. Lawyers for the Higher Education Funding Council for England advised that the settlement, which included £211,493 to cover the remainder of the Vice Chancellor's fixed term contract and £200,000 in additional compensation, could constitute a misuse of public funds. As a result the University agreed to set aside the agreement and a new settlement package was negotiated, costing around £150,000.

  4.  The original settlement package contained a clause which stated that the terms and conditions of the agreement should be private and confidential, and should not be disclosed to any third party unless required to do so by an express statutory duty or with the agreement of the former Vice Chancellor and the President of the University Council. Under the terms of the package the former Vice Chancellor also undertook to make no public statement about the termination of his contract for a period of four years or take any legal action relating to the termination.

PAC report

  5.  The Committee noted that it was "strongly opposed" to the gagging clause as included in the original severance agreement. It commented that "such a restriction should not be employed to prevent disclosure of the use of public funds".

Treasury minute (Cm3013)

  6.  The Treasury Minute commented that the Department and Funding Council shared the Committee's views on gagging clauses, and agreed that in principle there should be no confidentiality clauses other than for commercially sensitive information. The Funding Council committed itself to reiterating its requirements on the disclosure of settlements which had been set out in its Accounts Direction of 1994-95. Institutions would continue to be required to disclose details of any compensation paid in the event of a Vice Chancellor, or person of equivalent stature, losing office.

THE SUSPENSION OF DR O'CONNELL: 40TH REPORT 1994-5

Background

  7.  Dr O'Connell, a consultant paediatrician with the then North East Thames Regional Health Authority was suspended by the authority in 1982 for breach of contract. She remained suspended on full pay until May 1994 when North Thames Regional Health Authority withdrew all allegations against her and she agreed to take early retirement. The costs of Dr O'Connell's suspension and the settlement of her legal action was £593,409.

  8.  As part of the settlement with Dr O'Connell a clause was included stating that the amount of the settlement would remain confidential between the two parties. In evidence to the Committee the Chief Executive of the NHS Management Executive, Alan Langlands said that this was at Dr O'Connell's request. He accepted that press and public interest in the case meant that it was always unlikely that the settlement would remain confidential.

PAC report

  9.  The Committee found it "unacceptable" that the settlement involved a confidentiality clause. It considered that such a clause was likely to impede accountability for what has been a serious waste of public money and it was no defence to argue that the confidentiality clause was unlikely to be adhered to. The Committee found that this clause was "quite inconsistent with the proper conduct of public business" and looked to the NHS Executive to ensure that such clauses did not feature in severance payments for NHS staff.

Treasury minute (CM3013)

  10.  The NHS Executive agreed that as a matter of general principle confidentiality clauses should not play a part in severance arrangements. It drew attention to Health Service Guideline (94)18, issued by the Department of Health, which states that "an employment contract should not be framed in such a way as to suggest that a settlement on termination would escape proper public scrutiny".

OVERSEAS OPERATIONS, GOVERNANCE AND MANAGEMENT AT SOUTHAMPTON INSTITUTE: 26TH REPORT 1998-99

Background

  11.  The former Institute Director at Southampton Institute took early retirement on 31st August 1997 and he received a sererance package of £157,966. In a separate agreement with the Director it was stated that "no announcement or statement concerning the termination of the former Institute Director's employment should be made by or on behalf of the former Institute Director or the Institute except on the lines of their agreed respective press releases". In evidence to the Committee the Institute said this agreement was initiated by the Institute Director in order to prevent or minimise adverse comments about the termination of his employment.

PAC report

  12.  The Committee noted that its predecessors had said that issues concerning the use of public money must be seen to be open and accountable and that confidentiality agreements were therefore inappropriate. It looked to the Institute to ensure that they did not make any further confidentiality agreements relating to matters arising from the use of public funds.

Treasury minute (Cm4496)

  13.  The Treasury Minute said that revised procedures in place at the Institute would prevent a recurrence of such agreements. The Funding Council was aware of the concerns voiced in previous PAC reports and agreed that there must be openness and transparency in this area. The Council's current guidance stated that there should be no confidentiality clauses in severance agreements except in respect of commercially sensitive information. However, in the light of the Committee's concerns the Funding Council undertook to consider whether this guidance needed to be strengthened.

National Audit Office

22 May 2000


 
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