CEO of NHS trust dismissed following superbug scandal entitled to compensation

Gibb v Maidstone & Tunbridge Wells NHS Trust [2010] EWCA Civ 678 CA

unfair dismissal | compromise agreement | ultra vires

The Court of Appeal has held that an NHS trust was entitled to take into account a CEO's previous good record and negative prospects of obtaining future employment when making a severance payment. 

The claimant, Rose Gibb, was employed as CEO of Maidstone & Tunbridge Wells NHS Trust. Ms Gibb's contractual notice period was six months and her annual salary was around £150,000. In 2006, there was an outbreak of the "superbug" Clostridium difficile within the hospitals managed by the trust, which resulted in a large number of patient deaths, sparking public outrage. The Healthcare Commission launched an investigation into the matter and its subsequent report was highly critical of the trust's leadership, recommending that the trust review its leadership, given the significant failings. 

With prior knowledge of the Healthcare Commission's report, the trust decided to terminate Ms Gibb's employment by way of a severance arrangement, recorded in a compromise agreement. In 2007, Ms Gibb accepted the trust's offer of approximately £250,000, comprising a £75,427 payment in lieu of notice and a compensation payment of £174,573. In return, Ms Gibb undertook not to bring any legal claim against the trust. 

However, following the publication of the report, the trust was instructed by the Department of Health to withhold the severance payment, although the Department eventually authorised the payment in lieu of notice to Ms Gibb in 2008. Ms Gibb subsequently brought a civil claim in the High Court for the money due under the compromise agreement. The trust, which by this point was made up of a newly constituted board, argued that its decision to pay the specified amount was "ultra vires", or outside its powers and, as a result, the compromise agreement was unenforceable. Ms Gibb disagreed and responded that, in the alternative, if the compromise agreement was to be found "ultra vires", she should still be entitled to damages on the basis that the trust had been "unjustly enriched" by her foregoing her right to bring a claim for unfair dismissal. 

The High Court confirmed that the purpose of the ultra vires doctrine is to protect the interests of the public where a public body makes a decision that is outside its powers. The High Court also noted that to justify a severance payment exceeding an employee's contractual or statutory entitlements, the trust should have obtained treasury approval by submitting a business case detailing why the sum was value for money and that it would not be rewarding any failure by the employee. 

With this in mind, the High Court found that the trust had failed to justify the payment (which far exceeded the maximum compensation an employment tribunal could award Ms Gibb) and agreed that the compromise agreement was "irrationally generous", ultra vires and unenforceable. The High Court also rejected Ms Gibb's alternative claim that the Trust had been unjustly enriched. Ms Gibb appealed the decision to the Court of Appeal. 

The Court of Appeal overturned the decision by the High Court. It referred to the case of Newbold v Leicester City Council [1999] All ER (D) 772 CA, which is authority that, where a public authority seeks to rely on its own irrationality so as to avoid a private law claim, the public authority will have a "steep hill to climb". 

It found that the High Court could not be certain that, had Ms Gibb proceeded with her unfair dismissal claim in the employment tribunal, the trust would not have settled for an amount higher than the statutory maximum. The Court of Appeal also disagreed with the High Court's decision that Ms Gibb's previous good record and the likely difficulties she would encounter in obtaining future employment were irrelevant issues. For these reasons, the Court of Appeal found that the compromise agreement had not been made "ultra vires" and was enforceable. 

The Court of Appeal, although its finding on the ultra vires point meant that Ms Gibb's appeal had succeeded in full, also considered the matter of unjust enrichment. It agreed with Ms Gibb's submissions and noted that the breach of contract occurred when the trust "recklessly assured" her that all the necessary processes to effect the payment had been followed and such assurances caused Ms Gibb to enter into the compromise agreement. This was not an issue arising from the dismissal because it occurred before the employment ended, meaning that the High Court had jurisdiction to hear the claim as it was within the "Johnson exclusion area" (see Johnson v Unisys Ltd [2001] IRLR 279 HL). The trust was unjustly enriched by Ms Gibb's foregoing her right to bring an unfair dismissal claim. 

The Court of Appeal warned that the High Court should not have adopted the role of auditor and that the sum originally agreed with Ms Gibb was "not outlandish compensation for the arbitrary termination of a career which it was unlikely Ms Gibb would be able to resume or resurrect". 

Additional resources

• Compromise Agreement Use this model agreement to set out the terms on which the company has agreed to settle any claims with an employee. 
• Compromising employment disputes - a guide The HR & Compliance Centre "how to" section provides practical step-by-step advice on how to compromise employment disputes. 

Case transcript of Gibb v Maidstone & Tunbridge Wells NHS Trust [2010] EWCA Civ 678 CA (on the BAILII website)