Settlements in the spotlight – criticism of £437,000 settlement payment to former Croydon chief executive

Croydon Council are not the first council, nor the last, to be on the receiving end of criticism in relation to its decision making around settlement agreements.

The external auditor identified numerous failings in the officer report to the appointment committee meeting relating to the settlement agreement. These included:

1. The report failed to set out the facts about the breakdown in trust and confidence between the then Leader and the then chief executive, including any wrongdoing by the council and attempts at dispute resolution.
2. No legal advice was taken on the merits and chances of success of any employment tribunal claim.
3. There was no officer advice to explain the cost differentials and the breakdown of the offer.
4. There was no mention of efforts, if any, made by officers to negotiate a lower quantum of financial settlement or whether this had been explored at all.
5. The process of convening the meeting did not meet the council’s constitutional requirements and was potentially unlawful.
6. The former leader of the Council chaired the appointments committee and given their involvement in the circumstances leading up to the settlement agreement they should not have done so.
7. Proper records were not kept of conversations between the leader, monitoring officer, former chief executive, section 151 officer, and director of HR relating to the exit.

The law

When considering settlements, we always urge local authorities to be mindful of the following legal principles:

• Under section 3 Local Government Act 1999 local authorities have a general due to achieve best value, which includes having regard to economy, efficiency and effectiveness. This was a specific criticism made against Croydon, as it failed to properly consider other avenues available.
• In accordance with guidance issued under the Localism Act 2011, any severance payment in excess of £100,000 must be approved by Full Council.
• The statutory guidance on special severance payments (May 2022) makes it clear that:
  • Special severance payments do not usually represent value for money and should only be considered in exceptional circumstances.
• They should only be made when there is clear and evidenced justification for doing so and all internal policies and procedures have been following and alternatives considered.

Learning points

If a local authority is looking to make a severance payment, then we would encourage the following:

1. Considerations before deciding to make a severance payment:
   • Involve all relevant personnel in the decision making process including the monitoring officer and section 151 Officer.
   • Consider and document the reasons why the individual must leave the local authority.
   • Explore any and all possibilities to exit the individual at a lower cost. Do not consider a severance payment unless there is no feasible alternative.
   • Include rationale for the calculation of the payment.
   • Consider public perception and alternative uses for the money.
   • Consider whether those offered a payment would not have been willing, under any circumstances, to leave with their statutory and contractual benefits alone?
   • Seek legal advice on the prospects of defending any employment claim and the likely costs that would be incurred.
   • Ensure that any payments are not used to avoid management action, disciplinary, or unwelcome publicity and embarrassment.
   • Manage any conflicts of interest – ensure that no conflicted personnel are involved in the decision-making procedure.
2. Deciding to make and approving a severance payment:
   • Carefully follow any constitutional procedure within the council for convening any meeting relating to the payment.
   • Approve any settlements as follows:
     • Payments of £100,000+ must be approved by the vote of a Full Council
     • Payments between £20,000-£100,000, where the sums paid fall within the definition of a special severance payment in the May 2022 statutory guidance, must be personally approved and signed off by the head of paid service with a clear record of the Leader’s approval and any others who have signed off on the payment
     • Payments below £20,000 (again, where the payments fall within the definition of special severance payment) must be approved according to the local authority’s scheme of delegation.
     • Further consider whether there are any apparent conflicts of interest at this juncture.
   • Do remember reporting and transparency obligations under the Account and Audit Regulations 2015 along with CIPFA accounting guidance including:
     • Publish pay policy statement to include policies on termination payments
     • Publish annual statement of accounts, governance statement and narrative statement to disclose all severance payments, pension fund strain costs and other special severance payments.

If you would like to find out more, please contact Matthew Gregson.

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