In the recent case of Bigg v Maidstone and Tunbridge Wells NHS Trust, the High Court has ruled that an employer who was overly generous in the sum that it offered in a compromise agreement was entitled to withhold the payment when the employee tried to claim the sum offered.

Ms Gibb was Chief Executive of the Trust, and was offered £250,000 in the agreement, £75,000 of which was paid in lieu of notice, with a further £175,000 to be paid as compensation for loss of office. Before the payment could be made, however, the Department of Health became aware of the agreement and instructed the Trust to withhold the £175,000 payment until further notice.

Subsequent to this, Ms Gibb brought a claim against the Trust for breach of the terms of the agreement.

The Trust argued that it was not obliged to make the payment because the agreement had been irrationally generous and ultra vires, meaning that it had exceeded its authority in agreeing the sum without it first being approved by the Treasury. Ms Gibbs countered that, even if the payment was ultra vires, she was still entitled to an equitable remedy in damages.

The High Court decided in the Trust’s favour, agreeing that the payment was irrationally generous and therefore ultra vires. The Judge made it clear that the Trust had over-calculated its potential liability to Ms Gibb when it made the compromise agreement.

A more realistic figure would have been somewhere in the region of £145,000 - this would include a payment in lieu of her contractual notice period, and a sum equivalent to the maximum amount payable if she had won an unfair dismissal case against the Trust.

The Judge also noted that the Trust had arrived at the figure without first making a proper financial analysis, and had used irrelevant criteria such as her previous good service to arrive at the figure.

Employers should always take care to ensure that they have made a fair and accurate assessment of the amount employees are entitled to in any agreement, especially in the public sector where ex gratia payments can be made.

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