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Employment News – March 2013

Gagging clauses – do they make you gag?

There has been a lot of press coverage in the last couple of weeks about the use of “gagging clauses” in compromise agreements in the NHS.  The coverage has been largely critical of their use, and the Government announced on 14 March that the use of such clauses in compromise agreements for departing employees in the NHS were to be banned.  Since that announcement, the terms of the compromise agreement between the University Hospitals of Morecambe Bay NHS Foundation Trust and its former Chief Executive have been disclosed (by that Trust) and Sir David Nicholson, the Chief Executive of the NHS told the Public Accounts Committee that previously “gagged” ex-employees of the NHS will be written to and told that they are free to speak out about wrong-doing.

“Gagging clauses” are in reality just a confidentiality clause linked to a repayment provision and they are commonly used in compromise agreements.  By using them, employers aren’t necessarily seeking to silence employees but to control how they may decide to speak up about potential whistleblowing issues once their employment has ended.  Provided that the confidentiality clause itself is well drafted – which is the key point for all employers to note – all that it should seek to do is to give an employer the ability to recover the severance payment made to an ex-employee who subsequently, and without good reason, raises a concern in a very public manner rather than via the employer’s whistleblowing procedure. 

Whilst I completely agree that it is wrong for employers to seek to prevent ex-employees who know about wrong-doing from speaking up, to my mind the coverage of this issue hasn’t been completely fair and a number of important points have been overlooked in the clamour to agree how appalling it is that NHS trusts would seek to keep a lid on internal wrong-doing, particularly in relation to patient safety issues. 

For instance, there has been very little coverage about the fact that the ex-employees have received significant sums and then refused to repay that money, when they entered into a binding agreement which included their agreement to repay it if they breached the terms of the agreement, having had independent legal advice prior to signing the agreement.   That’s similar to someone buying a car from a car dealership via a finance package, then deliberately cancelling their loan repayments because they’ve decided they don’t want to pay any more for the car after all, but then kicking up a huge fuss when the dealership gets a court order forcing them to return the car. 

However, the more important omission in the press coverage that I’ve seen is the fact that the whistleblowing legislation has always prevented employers from seeking to gag employees from blowing the whistle.   Section 43J of the Employment Rights Act 1996 states:

“(1)        Any provision in an agreement … is void in so far as it purports to preclude the worker from making a protected disclosure.

(2)          This section applies to any agreement between a worker and his employer…including an agreement to refrain from instituting or continuing any proceedings…”

This wording means that any clause in a compromise agreement which seeks to prevent the employee from making a public disclosure about concerns relating to the conduct of their employer is void and cannot be enforced by the employer.    In other words, the employee can make a protected disclosure if they wish to do so.  However, section 43J does not say that a clause which requires the ex-employee to repay a severance payment if they do make a disclosure is void. 

In my opinion this means that such a clause is potentially enforceable, and that it is not necessarily wrong of the employer to seek recovery from the ex-employee if they do decide to raise a whistleblowing issue, provided that  – and this is an important point – the employer only seeks to do so where the ex-employee has acted unreasonably in how they have made the disclosure, for instance raising the issue directly with the press rather than, say, via the employer’s own internal whistleblowing procedure.  However, both the confidentiality clause and the repayment provision need to be carefully drafted.

In effect, all that a confidentiality and repayment provision in a compromise agreement is, is the employer saying to the employee:

“we’re agreeing to pay you a large sum of money*,so its only fair that we stipulate certain terms on you accepting this money.  One of these is that you don’t bring any claims against us as a result of the termination of your employment.  Another term is that we want you to keep the terms of this settlement confidential, but if you then decide that you don’t want to keep the terms confidential and you breach confidentiality in what we consider to be an unreasonable manner, then we want our money back”

(* bear in mind here that in some cases the amount paid may be more than the employer is likely to be required to pay if the employee bought an Employment Tribunal claim and was successful in that claim, also that the employer may have had legitimate grounds to dismiss the employee for reasons wholly unrelated to the alleged disclosure)

I may be in a minority here, but I don’t think there’s anything wrong with that.  If the employer had been aware prior to the compromise agreement being signed that the employee was planning to go public with concerns about the workplace, I am certain that in the overwhelming majority of cases the employer would not have been willing to pay the employee the amount that they ultimately did, so why shouldn’t they ask for their money back? 

So far as I have seen there has been no suggestion in recent press coverage of this issue that NHS trusts have been seeking to recover severance monies paid to ex-employees as a matter of course when an ex-employee subsequently speaks up about potential concerns.  If they have been doing so irrespective of how the ex-employee has raised the concern, and in particular where the ex-employee has raised a concern via the appropriate first channel (i.e. via an internal whistleblowing procedure), it would be an attempt to prevent the employee making disclosures, which would not only be void but I agree it would also be “morally wrong“ (let’s not get into a debate about that means!). 

However, if the NHS trusts have only sought to recover the severance payment when the ex-employee has without good reason raised their concerns directly with the press rather than first of all via, say, the Trust’s whistleblowing procedure, then in my opinion the Trust is entitled to seek repayment from the ex-employee.   

The key learning points here for employers, whether in the public or the private sector, are that:

  • A confidentiality clause in a compromise agreement is void to the extent that it seeks to prevent the employee from making subsequent public interest disclosures
  • If you wish to include confidentiality and repayment provisions into a compromise agreement for a departing employee, you need to be give careful thought (a) as to how the clauses are drafted and (b) the circumstances in which you might seek to enforce the repayment provision, in particular make sure that the repayment obligation won’t be exercised automatically, only in the case of unreasonable breaches by the ex-employee;
  • Have a well-drafted and well-publicised whistleblowing policy; and
  • Make sure that any concerns raised are investigated properly and that this is seen to be so (to make it less reasonable for an employee or ex-employee to be able to justify failing to raise a concern via an internal disclosure).


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