Gibb v Maidstone & Tunbridge Wells NHS Trust
If public bodies don’t exercise their powers reasonably, courts can hold that they acted beyond their power (or ultra vires) in which case whatever they did will be void. Rather unusually in Gibb v Maidstone & Tunbridge Wells NHS Trust, the Trust argued that it had been irrational in offering an employee a large lump sum, but the Court of Appeal said that it was not irrational to compensate an employee for their past service and potential difficulties in finding future employment.
The union, Managers in Partnership (MiP) asked Thompsons to act on behalf of Ms Gibb.
Basic facts
Ms Gibb was appointed chief executive of the Trust and its “accountable officer” in November 2003. In 2006, there was an outbreak of C Difficile, after which a number of patients died. The report of the Healthcare Commission, which investigated the outbreaks, was highly critical of the Trust’s leadership.
Although the remuneration committee unanimously concluded that Ms Gibb should not be removed from her duties and Ms Gibb made clear she wanted to stay in her post to defend herself, the local Strategic Health Authority (SHA) thought otherwise.
The SHA and the Trust held sway and after taking legal advice, the Trust entered into a compromise agreement to pay her a total of £250,000. Under the agreement Ms Gibb undertook not to pursue any internal grievance or bring any contractual or statutory claim against the Trust; not to make any statement potentially damaging to the Trust and not to disclose the substance of it.
Although both parties signed the agreement, the Trust was instructed on 11 October 2007 by the Director General of NHS Finance to pay the six month notice period only - a total of £75,000 - and to withhold the compensation part of the payment.
Ms Gibb challenged that decision, but the Trust argued that it had been “irrationally generous to agree the payment” that the agreement was ultra vires and therefore void.
High Court decision
However, the High Court agreed with the Trust, saying that its approach to the question of costs was flawed because it had not carried out an adequate financial analysis and that it had miscalculated its potential liability for the maximum amount of compensation payable for unfair dismissal.
It had also been wrong to take her years of past service into account and had effectively been prepared to reward failure. The Trust had therefore been “irrationally generous” to agree to pay a total of £250,000 and it did not, in any event, have the authority to make the payment, rendering it ultra vires.
The judge accepted that the Trust had breached the implied duty of trust and confidence by recklessly assuring her that all relevant parties had agreed to the compromise and rejected Ms Gibb’s arguments that her loss had flowed directly from the Trust’s reckless assurances and not the dismissal.
Court of Appeal decision
The Court of Appeal, however, disagreed. It said the High Court had been asked to decide the reasonableness or otherwise of the Trust’s decision, not whether it was a financially prudent settlement. In any event, the Trust “had to consider a series of matters not all of which were clear-cut or implied financially precise outcomes”.
It was also far from clear that, in the absence of a compromise agreement, the Trust would have simply conceded and offered the statutory maximum to settle a potential unfair dismissal claim. Nor should the High Court have presupposed that the Trust would have been prepared not only to offer the maximum amount of compensation, but also to admit that Ms Gibbs’ dismissal was unfair.
And it also criticised the High Court for viewing the many years of good service that Ms Gibb had given to the Trust as irrelevant. There was no reason, it said, why an employer should disregard past service and the difficulties that an employee might have in finding future employment when settling terms of severance.
It held that “the constraint of rationality will not close the door on some degree of generosity for the sake of good relations and mutual respect between employer and employee”.
The Court accepted Ms Gibb’s argument that her loss did not flow from her dismissal and that the breach of contract (the reckless assurances) caused her to enter into the compromise agreement, and thus sign away her potential unfair dismissal claim.
Finally, the Court concluded that the compensation figure of £250,000 was not “outlandish” for the “arbitrary termination of a career which it was unlikely Ms Gibb would be able to resume or resurrect. If so, the only other question was whether it had been reached on a false basis”, which it said it had not.