APPENDIX 2
Supplementary memorandum submitted by ENTRUST
SUSPENSION/DEPARTURE OF DR R SILLS
INTRODUCTION
1. I was requested by the Public Accounts Committee to prepare and submit a note, responding to the questions raised during the private session on 5 November 2001, concerning payments made to Dr Richard Sills, and the legal advice received by ENTRUST on these and associated matters. This note is submitted in response to that request.
BACKGROUND
2. On 27 February 2001, the then Chief Executive of ENTRUST, Dr Richard Sills ("RS"), wrote a letter to Dr Malcolm Aickin. That letter appears as an Appendix to the Tenth Report of the Environment, Transport and Regional Affairs Committee ("the Environment Committee"), Session 2000-01. As a result of that letter ENTRUST and RS apologised to the Environment Committee for a contempt of Parliament contained in that letter.
3. ENTRUST accepted corporate responsibility for that contempt while pointing out that the said letter of 27 February 2001 did not reflect a resolution of the Board of ENTRUST pursuant to which the offending letter of 27 February 2001 was purportedly written.
4. The Board of ENTRUST was properly concerned that ENTRUST had unwittingly committed a contempt of Parliament, including the ill-judged and inappropriate response of RS to Board instructions. The Board was further concerned that the performance of RS may have been unsatisfactory in other respects.
5. Accordingly, at its meeting on 28 March 2001, the Board resolved to set up an investigation into the performance of RS with a view to considering whether disciplinary proceedings were appropriate. RS was suspended from carrying out the duties of his post (but as a neutral, non-disciplinary measure). He was not on "gardening leave" but was under suspension. RS was entitled to be paid during the period of his suspension, in accordance with his contractual entitlement (standard practice in both public and private sectors). His annual salary was £65,742. In addition, ENTRUST made an employer's pension contribution (5 per cent of salary) and RS was entitled to the use of a leased car.
6. The Investigation Panel reported to the Board of ENTRUST at its meeting on 21 May 2001. The Board decided to set up a Disciplinary Sub Committee to consider disciplinary charges against RS.
7. Following the notification of that decision to RS, discussions took place which resulted in an agreement between RS and ENTRUST for the termination of his employment on 30 June 2001 by mutual agreement. For the avoidance of doubt, RS did not offer to resign[9]. He was prepared to agree to leave if terms could be agreed. RS was not dismissed but the reality is that he lost his job on account of a breakdown in the confidence that has to exist between the non-executive directors of a company and its Chief Executive.
8. Even if he had been dismissed following the conclusion of disciplinary proceedings, including internal appeal procedures, RS would have been entitled to receive payments made to him in respect of the period 28 March 2001 to 30 June 2001. Those payments do not represent an additional cost. For the period from 29 March 2001 to 21 May 2001 (date of decision to initiate disciplinary proceedings) these costs were £9,711; and for the period from 22 May 2001 to 30 June 2001 (date of termination of employment) £7,205.
9. ENTRUST received, and at all times acted in accordance with, legal advice from Rowe & Maw [now Mayer, Brown, Rowe & Maw] specialist public law and employment law solicitors of London EC4. ENTRUST was advised of a need to proceed with due despatch but not at the expense of proceeding in a manner which might have exposed ENTRUST to avoidable risk of successful legal challenge. Dismissals may be held to be unfair on procedural as well as substantive grounds.
SUPPLEMENTARY PAYMENT
10. RS received a severance payment of £59,900. In addition, he received the sum of £100[10] (necessary to make legally enforceable his ongoing duty of confidentiality in respect of trade secrets, confidential information and otherwise): see below.
11. In considering the level of payment to be made to RS, ENTRUST had regard to legal advice, including advice that any other course of action could have resulted in greater cost to ENTRUST.
12. That advice included the fact that, whether or not a disciplinary case against RS was established, there were no grounds for his summary dismissal. RS would therefore have been entitled to six months' notice (or pay in lieu of notice) in any event. The discretionary element of the settlement therefore represented the equivalent of five months' salary, approximately £27,000.
13. In considering the contempt of Parliament for which RS had at least some responsibility, ENTRUST was aware that RS had cleared the contempt letter with Manchester solicitors who were then advising ENTRUST but who had failed to advise against sending the letter. ENTRUST was advised that this was an important factor and should not be overlooked in assessing the culpability of RS, and hence the remedies open to ENTRUST, in respect of the contempt.
14. ENTRUST was further advised that any disciplinary proceedings and internal appeal proceedings in accordance with RS's contractual entitlement would inevitably have been over a protracted period (during which period RS would have been entitled to be paid in full in any event).
15. ENTRUST was advised that disciplinary and internal appeal proceedings would involve the expenditure of significant management time by senior officers of ENTRUST and would require the time of the Chairman of ENTRUST and a number of Board members, to the detriment of discharging ENTRUST's responsibilities for the operation of the LTCS.
16. It was also advised that, in the event that the outcome of any disciplinary procedure had been a decision to dismiss RS on notice, it is likely that he would have commenced proceedings against ENTRUST in an Employment Tribunal alleging unfair dismissal. Such proceedings would again have involved significant management time and effort and significant legal costs, whatever the outcome. (Costs are not normally awarded against an unsuccessful party at an Employment Tribunal.)
17. It was also drawn to ENTRUST's attention that, not only would the process of disciplinary and related proceedings be time consuming and disruptive, it would also delay the opportunity for ENTRUST to move forward by replacing a chief executive in whom its Board had lost confidence.
18. For these principal reasons, ENTRUST was advised that the settlement agreed represented a beneficial settlement from its point of view and ENTRUST proceeded in accordance with that legal advice.
THE "CONFIDENTIALITY CLAUSE"
19. If the PAC has a concern that the "confidentiality clause" in the settlement agreement was included to prevent RS telling his side of the story and from "telling the truth about ENTRUST", that concern is misplaced. It is a misunderstanding to assert that ENTRUST required RS "to sign a confidentiality clause not to make criticisms of the board or the company" or "not to criticise ENTRUST or to make his grievances against ENTRUST public".
20. RS was suspended from carrying out his duties on 28 March 2001. ENTRUST considered issuing a short factual statement as to the position but received representations from RS's solicitors requesting ENTRUST not to do so. ENTRUST agreed to that request. From RS's point of view, it was an important part of the subsequent settlement that there would be agreement between him and ENTRUST limiting further statements. The settlement agreement gives effect to RS's wishes in that regard, as was made clear by Mr Broadbent in his answer to Q200.
21. In fact, there are two "confidentiality clauses" in the settlement agreement: clauses 5 and 6. Clause 5 is an absolutely standard clause restricting the disclosure of trade secrets and confidential information, for example, information provided to ENTRUST in confidence. It was included at the instigation of ENTRUST, in accordance with legal advice to ENTRUST.
22. Clause 6 makes provision for the terms of the settlement agreement itself to be confidential, with appropriate exceptions. That is standard practice. RS sought to make the clause narrower in scope whereas ENTRUST argued for wider disclosure. ENTRUST insisted on the clause containing provision enabling it to disclose the terms of the agreement to HM Customs and Excise.
23. Clause 6 also contains a mutual obligation on RS and ENTRUST not to make or publish any untrue or misleading statement or comment about the other. Again, that is a standard provision. That provision does not prevent RS telling his side of the story or from telling "the truth about ENTRUST". The mutual obligation is not to make "untrue or misleading statements" and does not have wider effect. ENTRUST is advised that many confidentiality clauses do seek to prevent any comment by the departing employee at least for a specified period: no such "gagging clause" was included in the settlement with RS.
LEGAL FEES
24. The legal advice given in relation to Dr Sills falls into two phases:
(a) 29 March 2001 to 21 May 2001. In that period, Rowe & Maw gave advice to ENTRUST and in particular to the Investigation Panel which carried out a preliminary (non-disciplinary) investigation into whether Dr Sills was in breach of his terms of employment. The fees payable to Rowe & Maw for the period 29 March 2001 to 21 May 2001 in respect of advice to the Investigation Panel and other matters in relation to Dr Sills were £14,451 (exclusive of VAT).
(b) 22 May 2001 to 9 July 2001. The second phase was the conduct of those negotiations and the drafting and negotiation of a formal agreement which gave effect to the agreement reached. Those negotiations resulted in an agreement being concluded on 9 July 2001. The fees payable to Rowe & Maw for the period 22 May 2001 to 9 July 2001 in respect of the negotiation and conclusion of an agreement for the mutual termination of the employment of Dr Sills were £8,893 (exclusive of VAT). That figure represents the legal costs incurred by ENTRUST in negotiating the departure of Dr Sills.
GENERAL
25. I am confident that the decisions taken by ENTRUST were guided by its view of what was in the public interest, informed by specialist legal advice. The decision whether or not to publish the transcript of the confidential session, together with this note of clarification, is a matter for the Committee. However, in support of Mr Broadbent's remarks (Q200), I request that the Committee considers the likelihood that publication could be unfairly damaging to RS, bearing in mind that no disciplinary actions took place which found proved any of the disciplinary charges which RS would have faced.
26. If the Committee requires further information, ENTRUST will be pleased to assist.
Roger Hyde
Chief Executive
Lord Cranbrook
Chairman
ENTRUST
March 2002
9 During the evidence session, I mistakenly stated that RS "chose to resign". My use of this term may have led to misunderstanding. If that is the case, I apologise unreservedly. Back
10 This comprised two payments of £1 and £99 respectively. The differing (nominal) amounts have no legal significance. Back
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