Confidentiality clauses and severance payments: Academy Trust failed to seek DfE approval

Recent reports suggest that a trust has failed to comply with the rules on confidentiality clauses, in what appears to be the first reported case of non-compliance. BMAT Education is understood not to have obtained DfE approval before including a confidentiality clause and also failed to secure the required approval for the staff severance payment. Although the trust later sought approval, the DfE did not grant it. 

What are the rules on confidentiality clauses?

Clause 5.13 of the Academy Trust Handbook states that confidentiality clauses associated with staff severance payments are novel, contentious or repercussive and should not be used unless the academy trust has obtained prior DfE approval. 

Clause 5.12 of the College Financial Handbook applies the same requirement to FE colleges. 

The Guidance on Public Sector Exit Payments also states, at clause 3.4, that treasury approval is required if the payment is novel, contentious or repercussive, regardless of its value. It provides examples of circumstances which will be considered novel, contentious or repercussive, one of which is a settlement agreement that contains a confidentiality clause. 

The guidance also makes clear that legal advice must be obtained before including such a clause. 

It further confirms that any confidentiality clause: 

• Should not prevent an individual's right to make disclosures in the public interest under the Public Interest Disclosure Act 1998 (whistleblowing); and
• Should not be used to prevent DfE from obtaining sufficient information from colleges/trusts to fully assess payments under its regulatory role. Nothing in the agreement should restrict financial reporting obligations. 

When is DfE approval needed for special severance payments? 

A ‘special staff severance payment' is any payment under a settlement agreement that the employee is not entitled to under their contract or statute. 

Clause 5.10 of the Academy Trust Handbook states that DfE approval is required, before any offer is made to staff, where the payment amount is equivalent to £50,000 or more (gross, before income tax or other deductions). Additionally, academy trusts must obtain DfE approval before making a special staff severance payment where any of the following apply: 

• an exit package of £100,000 or above includes a special severance payment
• the employee earns over £174,000
• a payment is novel, contentious or repercussive

Whenever an academy trust considers making a staff severance payment that exceeds statutory or contractual entitlements, it must consider the following issues before making any binding commitment (even if the proposed payment is below the thresholds set out above): 

• that the proposed payment is in the trust's interests
• whether the payment is justified, based on legal assessment of the trust's chances of successfully defending the case at tribunal
• if the settlement is justified, the trust would need to consider the level of settlement - this must be less than the legal assessment of what the relevant body (for example, an employment tribunal) is likely to award

Similar approval thresholds apply for colleges (see clauses 5.10 and 5.11 of the College Financial Handbook). Clause 5.8 also requires colleges to:

• consider whether the special staff severance payment is appropriate
• take and document legal and HR advice
• clearly document the management and approval process
• consider what level of payment is appropriate and
• ensure there is evidence to support any non-financial factors 

What does this mean for schools and colleges?

This appears to be the first reported case of a breach of the confidentiality clause rules since their introduction, which we discussed here. 

It serves as an important reminder of the staff severance payment thresholds, and that confidentiality clauses should not be included as a matter of course in settlement agreements. You should assess whether a confidentiality clause is necessary based on the specific circumstances of each case. If you conclude that it is appropriate to include a confidentiality clause as part of a staff severance package, DfE consent is required and you must take legal advice. 

There are a number of factors to consider, so it's important to take legal advice and obtain any required DfE approval before making an offer. 

We can support you with this, please contact Jenny Arrowsmith for more information. 

Our newsletters

We publish monthly employment and education newsletters. If you'd like to be added to the mailing list, please let me know.