Utilisation of Compromise Agreements.

STATES OF JERSEY

UTILISATION OF COMPROMISE AGREEMENTS

Presented to the States on 28th February 2012 by the Chief Minister

STATES GREFFE

2012   Price code: B  R.27

REPORT

In response to concerns raised by States Members and the wider public, the States Employment  Board  (SEB)  has  drafted  a  new  guidance  framework  policy  and guidelines (see attached Appendix) concerning the use of compromise agreements.

A compromise agreement is defined as a legally binding agreement in which an employee (or ex-employee) agrees not to pursue particular claims in relation to his or her  employment  or  its  termination,  which  is  usually  accompanied  by  a  financial settlement that is considered to be in full and final settlement of any claims that might have been pursued by either party. Such an agreement is normally mutually beneficial to both parties, employer and employee, and is accompanied by a confidentiality clause.

The Board will require regular reports on the use of compromise agreements across the States in order to satisfy itself that the policy is being applied as intended. Where compromise agreements are being considered for senior staff in the Civil Service "A" grades, or, where the salary is in excess of £100k, prior approval from the SEB will be required.

Acknowledging the Proposition (P.2/2012) lodged by Deputy R.G. Le Hérissier of St. Saviour  concerning  contractual  arrangements  for  Chief  Officers,  a  request  to disclose the sums in 2 recent compromise agreements was made to the individuals concerned. Following contact with the former Chief Executive Officer who left his post in May 2011, he has agreed that his settlement of £546,337.50p can be disclosed, which  was as  a  result  of  his  contractual  agreement  with  the  States  of Jersey.  A response is awaited from the other former officer of the States.

The Chief Minister is aware that the Comptroller and Auditor General (C&AG) has announced that he is to undertake an investigation to review the use of "Golden Handshakes" within the States of Jersey.

The Chief Minister welcomes this review and will await the outcome of the C&AG report, so that any recommendations arising can be built into the final version of the new SEB Severance Guidance Framework policy.

APPENDIX

STATES EMPLOYMENT BOARD

STATES EMPLOYMENT POLICY – COMPROMISE AGREEMENTS Objective

The purpose of this policy is to establish the framework for the appropriate use of compromise  agreements  and  the  process  that  supports  their  use.  The  States Employment Board reserves the right to modify or terminate this policy at any point.

Definition

A compromise agreement is a legally binding agreement in which an employee (or ex- employee) agrees not to pursue particular claims in relation to his or her employment or its termination, typically in return for a financial settlement. Such an agreement is normally mutually beneficial to both parties – employer and employee.

Compromise Agreements

There are 2 levels of agreements within the States of Jersey (SoJ):

1. Grades up to and including Civil service Grade 15/3 or equivalent salary; and
2. A' Grades, personal contract holders or equivalent.

1. Level One Agreements: Grades up to and including Civil Service Grade CS15/3 (or equivalent salary)

The States Employment Board give delegated authority to the Director of Human Resources and the Chief Officer of the employing department to make severance arrangements  including  a  compromise  agreement  on  their  behalf.  As  part  of  the agreement between the employer and employee a settlement payment at this level may be made subject to the following:

• The  maximum  possible  payment  offered,  is  strictly  limited  to  the  salary payable to a Grade 15/3 plus contractual notice and must not exceed this amount. Contractual notice is in addition to such a payment unless notice is worked.
• The use of the SoJ standard compromise agreement.
• The advice of the Law Officers is sought in determining the compromise agreement if a significant departure from the use of a standardised agreement is required, then the proposed agreement will be referred to the SEB.
• Wherever  possible  normal  employment  processes  such  as  disciplinary, grievance,  capability,  performance,  absence  management,  etc.  must  be exhausted  prior  to  the  consideration  of  a  compromise  agreement.  A compromise agreement should only be used when it is not possible to deal

with the circumstances of the breakdown of the employment relationship by any other means.

Payment principles

• The total payment is not to exceed number of months' pay that would have been received to normal retirement age.
• The total payment is not to exceed the amount which would otherwise be paid to the individual for the remainder of contract if they are employed under a time-limited contract.
• Acting-up payments which are not pensionable should not be included when calculating payments.
• One-off lump sum payments will be subject to Tax at the prevailing rate.

The  SEB  requires  that  Employment  Relations  must  be  kept  informed  of  all compromise agreements in process, in order to report regularly to SEB.

2. Level Two Agreements: A' Grades, personal contract holders or equivalent

When there is a recognised need for compromise agreements to be made at this level, they must be considered and approved by SEB through their normal decision-making process before settlement is agreed. In such circumstances:

• A fully justified business case outlining the requirement for the compromise agreement and detailing its content must be tabled at an SEB meeting. The Chief Officer of the employing department is expected to present this case. Each case will be considered on its own individual merits and due regard must be made to the risks and benefits of making an agreement.
• The employing department is expected to ensure appropriate legal advice is taken to inform their business case and such amounts as are considered should reflect  the  compensation  to  the  individual,  the  risks  and  benefits  to  the employer, and the termination of the contract.
• Advice and guidance must be sought from ER, acting as secretariat to SEB.

No prospective agreement can be presented to SEB without the sanction of Chief Executive Officer and/or the Director of Human Resources. SEB reserve the right to reject any application which it does not consider to be in the interest of the States of Jersey.

COMPROMISE AGREEMENTS – GUIDELINES FOR HUMAN RESOURCES Purpose

The purpose of these guidelines is to ensure the use of compromise agreements is appropriate and strict process around their use is followed by Human Resources when advising Chief Officers and managers.

Definition

A compromise agreement is a legally binding agreement in which an employee (or ex- employee) agrees not to pursue particular claims in relation to his or her employment or its termination, typically in return for a financial settlement. Such an agreement is normally mutually beneficial to both parties – employer and employee.

Levels of Agreement

The SEB policy on compromise agreements identifies 2 levels of agreements:

1. Grades up to and including Civil Service Grade 15/3 or equivalent salary (£83,018 as at 01/01/2011); and
2. A' Grades, personal contract holders or equivalent.

Level One Agreements: Grades up to and including Civil Service Grade 15/3 or equivalent salary

This level of agreement may only be used:

• For grades of employees up to Civil Service Grade 15/3 or equivalent salary level (£83,018 as at 01/01/2011);
• When all possible normal employment process such as disciplinary, grievance, capability, performance, absence management, etc. have been exhausted and there  is  justification  as  to  why  these  processes  cannot  be  applied (A compromise agreement should only be used when it is not possible to deal with  the  circumstances  of  the  employment  contract  breakdown  by  these processes.);
• When there are a number of employment processes in train which cannot individually or severally be brought to conclusion in an appropriate or timely way;
• Using the standardised compromise agreement form and format; and
• That  the  advice  of  the  Law  Officers  must  be  sought  in  determining  the compromise  agreement  if  a  significant  departure  from  the  use  of  a standardised  agreement  is  required,  then  the  proposed  agreement  will  be referred to the SEB;

• That  the  Employment  Relations  team,  as  Secretariat  to  SEB,  must  be consulted to ensure the normal employment processes have been followed and that all alternatives have been explored;
• On the understanding that a business case must be prepared (see separate section on Business Case) and signed off by the Chief Officer concerned and the Director of HR;
• Any necessity to depart from this must be endorsed by the Law Officers and referred to the SEB for their approval (See Level Two agreements).

Level Two Compromise Agreements: A' Grades, personal contract holders or equivalent

When there is a recognised need for compromise agreements to be made at this level, they must be considered and approved by SEB through their normal decision-making process before settlement is agreed. In such circumstances:

• A fully justified business case (see section on Business Case) outlining the requirement for the compromise agreement and detailing its content must be tabled at an SEB meeting. The Chief Officer of the employing department is expected  to  present  this  case.  Each  case  will  be  considered  on  its  own individual merits and due regard must be made to the risks and benefits of making an agreement.
• The business case must be signed off by the Chief Officer, the Director of HR and Chief Executive Officer before presentation to SEB.
• The employing department is expected to ensure appropriate legal advice is taken to inform their business case and such amounts as are considered should reflect the compensation to the individual, risks and benefits to the SoJ, and the termination of the contract.
• The settlement amount should not normally exceed the equivalent of one year's pay subject to the agreement of SEB; the mandate and discretion to vary this rests with SEB. Although the SEB retains discretion to approve a total sum exceeding the equivalent of one year's salary, it has confirmed that it would only be minded to consider payment of a greater sum if it was presented with an exceptional and compelling business case.
• Advice must be sought from ER particularly with regard to ensuring normal employment processes are not appropriate and that all alternatives have been considered and also from the Law Officers as a non-standard agreement is likely to be used.

Who to notify and when

Law Officers:

• When the business case is being prepared (Levels One and Two).
• During the preparation of the compromise agreement (Level Two).

Employment Relations:

• When the need for a compromise agreement has been identified (Levels One and Two).
• Prior to sign-off by the Director of HR as this will require his assurance from ER that normal employment processes have been followed and/or exhausted (Levels One and Two).
• Once the compromise agreement has been signed by all parties (employer and employee) to notify SEB.

SEB:

• (via  Employment  Relations)  to  review  the  business  case  for  Level  Two agreements and in non-standard situations review the business case.

Business case

This business case is the justification as to why a compromise agreement is being sought to bring an employment contract to a conclusion. It is expected that a business case will be an integral part of the casework paperwork. The business case is required either:

• When a Level Two agreement is being determined, or
• If the Level One agreement cannot for whatever reason follow a standardised format appropriate to the circumstances, and has to be referred by exemption to the SEB.

It should contain the following:

• Clear reasoning as to why normal employment practices cannot be used to terminate  the  employee  and  demonstration  that  such  options  have  been considered and exhausted.
• Benefits and risks as to the employer as to why the compromise agreement should be made.
• Financial information detailing proposals for the settlement sum, taking into account the payment principles (see section following) and information to demonstrate that funding is available to meet any costs incurred.
• The standardised compromise agreement.

Payment principles

Level 1  agreements  should  be  equal  to  the  paid  notice  period  applicable  to  the employee plus their standard benefits entitlement plus a sum equivalent to 26 weeks' pay (reflecting the maximum award that could be made by the Jersey Employment Tribunal).

Both levels of agreement should take into account the following principles:

• The total payment is not to exceed number of months' pay that would have been received to normal retirement age.
• The total payment is not to exceed the amount which would otherwise be paid to the individual for the remainder of contract if they are employed under a time-limited contract.
• Acting-up payments which are not pensionable should not be included when calculating payments.
• One-off lump sum payments will be subject to Tax at the prevailing rate.
• Notice is normally payable in addition to the settlement amount.

Confidentiality

Inclusion of any confidentiality clause must only be on the strict advice of the Law Officers.  The  SEB  would  generally  expect  the  total  sums  payable  under  such agreements to be disclosable, albeit that a pay band system broadly similar to that already in use for reporting public sector salaries to the States Assembly would be used to disclose payments to staff. Severance payments made to staff where they are "accounting officers" would be disclosable in the States of Jersey Annual Report and Accounts in accordance with the requirements of the Public Finances (Jersey) law 2005 on an individual basis.

PROCESS DIAGRAMS