Cabinet Office issues Guidance on the use of Settlement Agreements and new “prior approval” process applying from 1 February 2015

The Cabinet Office has issued guidance on the use of settlement agreements, special severance payments and confidentiality clauses that will apply to all Civil Service organisations and their arm’s length bodies.

29 January 2015

The Cabinet Office has issued guidance on the use of settlement agreements, special severance payments, confidentiality clauses and includes a "prior approval" process. The guidance applies to all civil service organisations and their arm’s length bodies (ALBs) from 1 February 2015. It sets out: when settlement agreements should not be used; that special severance payments will be exceptionally rare; and that confidentiality clauses should not be used in settlement agreements as a matter of course. It applies where public money is spent on civil servants’ or non-civil servants’ employment, and particularly its termination. The guidance also covers COT3s. Organisations are now required to take legal advice before entering into such agreements.

The key aspects of the guidance are set out below.

Settlement Agreements (and COT3s)

Settlement agreements should only be entered into after legal advice has been taken. The employer and employee must both agree that the settlement agreement is in their best interest. All discussions about settlement agreements must be voluntary.

Settlement agreements should not be used:

  • as alternatives to proper performance management;
  • to cover up organisational failure;
  • to silence employees; or
  • to punish an employee for making a protected disclosure or whistle blowing.

Special Severance Payments

Departments must seek legal advice before making any special severance payments: i.e. any payments over and above an employee’s contractual or statutory entitlement. Any special severance payment should be in the public interest. There must be a full business case submitted to HM Treasury demonstrating that the severance payment offers value for money to the Exchequer.

Confidentiality Clauses

Confidentiality clauses should not be included in settlement agreements as a matter of course. Instead, the need to include a confidentiality clause, and the specific detail of that clause, should be considered carefully in all situations and legal advice should be sought. This applies to confidentiality clauses wherever they are used and is not limited to their use in settlement agreements or upon termination of employment.

Confidentiality clauses should not be used to silence whistle blowers. If a confidentiality clause is used, individuals should be expressly reminded of their rights under the Public Interest Disclosure Act 1998. The guidance includes standard wording for confidentiality clauses.

Where confidentiality clauses are being used, departments must seek approval from their Minister, and the Minister for the Cabinet Office from 1 February 2015 if any of the following circumstances apply:

  • a member of the Senior Civil Service is involved;
  • there is high visibility or where the agreement is likely to be contentious;
  • there is a proposed payment of £100,000 or more;
  • the clause deviates from standard wording in respect of whistleblowing or protected disclosures; or
  • a dismissal (on grounds of disciplinary, performance or attendance) has been overturned on appeal but the employer still wishes to terminate employment.

The guidance, including style confidentiality clauses, can be viewed by clicking here.