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.
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.
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
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.
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.
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".
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.
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
National Audit Office
22 May 2000