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A controversial compromise

Approximately 5 years after dismissal, the former Director of Children's Services at a London Council is reported to have accepted an six figure…

Approximately five years after her dismissal, Sharon Shoesmith, former Director of Children's Services at Haringey London Borough Council, is reported to have accepted an undisclosed six figure sum from her employer in settlement of her claim for unfair dismissal.

The comments from the Government and shadow cabinet on the recent settlement have been very negative. Former Children's Minister Tim Loughton has said that the payout "stinks" and Ed Balls, former Children's Secretary, who took the decision to remove Sharon Shoesmith from her role commented that the payout left a "bad taste" in his mouth and that he stood by his decision to remove Ms Shoesmith from office following an independent finding by Ofsted that there were 'disastrous failings in Haringey's children's services' and that 'management was at fault'.

However, it seems that had Ed Balls and Haringey London Borough Council paid more regard to the importance of fair process and getting the procedure right prior to making decisions about Sharon Shoesmith's continued employment, it may not have been necessary for the parties to arrive at such a sizeable settlement in this case.

The facts

The case involved the very sad death of 'Baby P' in 2007. Baby P had more than 50 injuries, despite being on the at-risk register and receiving 60 visits from social workers at the Council, police and health professionals over a period of eight months. Three people were jailed in 2009, including his mother.

At the time of his death Sharon Shoesmith was employed as Director of Children's Services at the Council. She earned £133,000 per year, plus benefits.

A Pre-determined dismissal?

On 1 December 2008 the Secretary of State for Children, Ed Balls, announced at a televised press conference that he had decided to remove Ms Shoesmith from her post as Director of Children's Services at the Council. He also commented the Council would consider the employment relationship "this afternoon and immediately" and that his view was that Sharon Shoesmith "should not be rewarded with compensation or pay offs".

Sharon Shoesmith had only heard about her removal from office while she was watching Ed Balls giving his TV press conference. At this point, it may have seemed to her that her dismissal was imminent and pre-determined.

Ed Balls also made a direction to appoint Ms Shoesmith's replacement that day and the Council immediately suspended her with pay. She was subsequently called to a disciplinary hearing on 8 December, which resulted in her being summarily dismissed from the Council. She did not receive any payment in lieu of notice or compensation of any kind. The Council said that the reasons for her dismissal were the Secretary of State's direction to remove her from office and appoint a replacement and because there had been a fundamental breach of trust and confidence. Sharon Shoesmith pursued an internal appeal but it was later rejected.

Legal Proceedings

Ms Shoesmith brought Judicial Review proceedings against the Council, Ofsted and the Secretary of State in relation to the flawed procedure and the decision to dismiss her. She also initiated Employment Tribunal proceedings against the Council, which were stayed pending the Judicial Review proceedings.

She took the Judicial Review proceedings all the way to the Court of Appeal and was successful in challenging the fairness of the process by which Mr Balls had removed her from office and how the Council summarily dismissed her.

The Arguments

The Council had argued that it had little option but to dismiss Ms Shoesmith in the light of the Ofsted report and the directions made by Mr Balls. While the Court of Appeal acknowledged that the Council had been in a difficult and legally complex situation. A key issue for the court was whether the Council's decision to dismiss Sharon Shoesmith was lawful because it was based on the Secretary of State's unlawful direction.

Sharon Shoesmith complained that there was a lack of procedure used in removing her from office. She argued that the Council then carried out a rushed disciplinary process, didn't give her the opportunity to put forward her case and terminated her employment because Ed Balls had announced her removal from office. Essentially, that the Council had failed to follow its own procedures.

The decision: A lack of process

The Court of Appeal held that the decision to remove her from office was "intrinsically unfair and unlawful" and the Council's decision to dismiss Ms Shoesmith without notice or payment in lieu of notice was unjustified because the dismissal was pre-determined. The Judge commented that:

"I find it a deeply unattractive proposition that the mere juxtaposition of a state of affairs and a person who is "accountable" should mean that there is nothing that that person might say which could conceivably explain, excuse or mitigate her predicament. "Accountability" is not synonymous with "Heads must roll". "

The court concluded that Sharon Shoesmith "was entitled to be treated lawfully and fairly and not simply and summarily scapegoated." The procedure followed by the Council was flawed from the outset and she had not been given an opportunity to put forward her case before the decision was taken about her continued employment. The importance of giving an individual a chance to explain their side of the story is fundamental to the fairness of a process when dealing with the termination of any employment relationship. It is essential that this opportunity is given before any outcome is considered or decision is made.

The Settlement Sum

Given the fact that the Court of Appeal decision was handed down in May 2011, it is clear that the settlement negotiations since then have been a lengthy process. Settlement was finally agreed at the eleventh hour before the parties were due to return to court.

The reality of the situation is that the remedy available to Sharon Shoesmith in the civil courts was likely to be far more valuable than what she could have been awarded in the Employment Tribunal. The relief sought from the Judicial Review proceedings included the quashing of the Council's decision to dismiss her, which rendered the dismissal null and void. The finding in her favour by the Court of Appeal enabled Sharon Shoesmith to claim back her contractual entitlements, including pay and benefits from the date of her dismissal until her employment was lawfully terminated by the Council.

It has been reported that Shoesmith had initially sought compensation in the region of £1m. However, the Court of Appeal held that Shoesmith was entitled to a declaration that her dismissal was unlawful and also to compensation, which should be negotiated between the parties. The Judge gave guidance that the level of compensation considered should fall between a sum equivalent to three months' salary and pension contributions (which she would have received during her contractual notice period) and pay and other contractual benefits attached to her role as Director until her employment has been lawfully terminated by the Council.

The press have reported that the settlement sum that has now been agreed is in the region of £600,000, but the exact figure is unlikely to emerge given that there are confidentiality restrictions preventing its disclosure. It was always inevitable that the exact figure agreed under the settlement agreement would be subject to confidentiality clauses preventing its disclosure into the public domain; this is a standard term of a settlement agreement

Analysis

The reported settlement sum seems to be a realistic assessment of what Sharon Shoesmith may have been awarded if she had returned to court as the issue of compensation had been left undecided. The settlement sum is likely to have been calculated to take into account her substantial salary arrears, future loss of earnings, inability to secure alternative employment because of the bad publicity surrounding the case, pension contributions and other benefits at least until her employment could have lawfully been terminated by the Council.

It is worth noting that had Sharon Shoesmith pursued her Employment Tribunal claim and won, it would have been likely that a Tribunal may have considered that any compensatory award should be subject to a significant uplift of up to 50% because of the unfair procedure that was followed by the Council (albeit still subject to the cap and the uplift would now be limited to 25%).

The court recommended that the parties negotiate to resolve the issue of compensation. Because of the publicity surrounding this case and the speculated settlement amount, this recommendation was probably very sensible.

Lessons for Employers

Had the Council had protected its own position by taking the time to apply its own fair procedure, allowing Sharon Shoesmith the opportunity to put forward her case and serving her with notice to terminate her contract, the court's decision may not have been so clear cut. Instead it appears that the Council had a 'kneejerk' reaction to the publicity surrounding the case, and pressure from the press and Secretary of State. The statements made in public by those involved made clear that the process was all pre-determined.

Employers should remember to follow their own internal disciplinary procedures and have regard to the principles set out in the ACAS Code of Practice when dealing with the termination of an employment relationship to ensure a fair and impartial process, no matter how sensitive or emotive the issue or who outside the employer organisation has offered an opinion. Statements made are important and shouldn't pre-judge the issues. At the end of the day the employer will be primarily accountable for any dismissal.

This case is an expensive reminder that when dealing with the termination of an employment relationship, the way a decision is taken can be as important as the decision itself. For those in the public sector it is a chilling highlight that in exceptional cases there will be legal avenues open to employees over and above more usual employee claims, for which greater amounts may be recovered from you. However for all employers the risk of unlimited compensation for discrimination claims and those arising from whistle-blowing means that a similar amount could still be recovered from you in the wrong situation if procedure is not followed.

Lynsey Bullick is a Solicitor based in our Manchester Office. If you have any queries regarding the issues raised in this article please contact lynsey.bullick@weightmans.com