There is a lack of transparency, consistency and accountability in the use of compromise agreements in the public sector and little is being done to change this situation, an investigation by the National Audit Office has found.
Public sector workers are sometimes offered a financial payment in return for terminating their employment contract and agreeing to keep the facts surrounding the payment confidential. The contract is often terminated through the use of a compromise agreement and the associated payment is referred to as a special severance payment.
The spending watchdog highlights the lack of central or coordinated controls over the use of compromise agreements. The NAO was not able to gauge accurately the prevalence of such agreements or the associated severance payments. This was down to decentralized decision-making, limited recording and the inclusion of confidentiality clauses which mean that they are not openly discussed. No individual body has shown leadership to address these issues; the Treasury believes that there is no need for central collection of this data.
Today’s report recognizes that compromise agreements can be used for legitimate reasons: such as minimizing potentially time-consuming processes in managing poor performance, or where an employee has raised a grievance which the employer has not been able to resolve and wants to mitigate the chance of being taken to an employment tribunal.
It is also a normal part of a compromise agreement that some information be kept confidential which can benefit both parties. But the practice of including a clause to ensure the employer gives the employee a good reference could help poorly performing staff members gain employment elsewhere in the public sector.
None of the agreements reviewed by the NAO sought to restrict the individual’s rights under the Public Interest Disclosure Act and six, all in the health sector, made clear that nothing in the agreement prevented the individual’s whistleblowing. However, some people offered compromise agreements or who had accepted them told the NAO they had felt ‘gagged’. If an individual is unfairly dismissed and turns down a compromise agreement, the lack of a reference for that individual might block alternative employment in his or her profession.
Neither the Cabinet Office nor the Treasury provide formal guidance to departments or keep records of the use of compromise agreements across government or the content of confidentiality clauses. Treasury has issued guidance on the associated severance payments. Despite the NAO’s statutory access rights, it received only 60 per cent of the compromise agreements requested from departments.
"Compromise agreements are widely, and often legitimately used. But the lack of transparency, consistency and accountability is unacceptable.
With the public purse under sustained pressure and services increasingly delivered at arm’s length, it is important that compromise agreements do not leave staff feeling gagged or reward the failure either of an employee or an organization.
The centre of government should get a grip on the use of compromise agreements in the public sector.”
Amyas Morse, head of the National Audit Office
Notes for Editors
The total value of Treasury approvals for special severance payments, three years to 31 March 2013
The approvals for special severance payments
The median value of approved payments
The number of cases in our sample of 50 compromise agreements which included a confidentiality clause covering the existence and terms of the agreement
The number of cases in our sample of 50 compromise agreements which made reference to the employee's rights to make a public interest disclosure
The number of cases in our sample of 50 compromise agreements which sought to prevent an individual making a public interest disclosure
1. Departments should seek the Treasury’s prior approval for any special severance payments they wish to make. The figures are approvals, not actual settlements as departments will negotiate with the individual receiving the settlement. The Treasury does not hold data on the amounts paid to individuals.
2. This report is the first in a number of NAO risk-based investigations designed to examine identified or suspected weaknesses in performance by public sector organizations. Decisions on what to investigate are based upon a range of sources, including our own analysis of trends and financial information; matters raised with us by MPs; issues referred to us by consumers of public services; and cases passed to us through whistleblowing.
3. Press notices and reports are available from the date of publication on the NAO website, which is at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474.
4. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 867 staff. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of almost £1.2 billion in 2012.