Report on £437k settlement payment to chief executive finds approval was lawful but criticises failings in officer report, absence of legal advice and poor record keeping

Croydon Council has admitted it should not have agreed to pay its former chief executive a £437,900 settlement upon termination of her employment and has accepted that there were significant failings in officer advice on the decision.

In a report to the council's external auditor, which is set to be considered by a Full Council meeting on 14 December, Croydon also admitted that it failed to keep proper records of conversations between the Leader, Monitoring Officer, former Chief Executive, Section 151 Officer, and Director of HR relating to the exit.

The decision to terminate the employment of the Chief Executive, Jo Negrini, and approve the settlement was made on 27 August 2020 by the council's Appointments Committee.

More than a year later, the local authority’s external auditor, Grant Thornton, received a query from an elector about the settlement payment.

The auditor then raised queries with the council about the governance arrangement relating to the settlement, whether it was value for money for taxpayers, and questioned the officer advice to members before reaching a decision on the payment.

In its response Croydon acknowledged there were "significant failings in the officer report to the August 2020 Appointment Committee meeting relating to the approval of the former Chief Executive's settlement agreement and consequently the decision making".

It said the officer report failed to set out the facts that gave rise to the breakdown in trust and confidence between the then-former council leader and the former chief executive and any attempts at conciliation or dispute resolution.

Croydon’s response added: "Allied to this, was the absence of legal advice on the merits and chances of success of any potential Employment Tribunal (ET) claims by the former Chief Executive which should have informed the decision on the settlement."

Generally, the officer report should have given members of the Appointments Committee all the relevant information to enable them to make an informed and reasoned decision, the council’s response noted.

For instance, there was no officer advice on a £48,000 'payment in lieu of notice' that formed part of the £437,000 payoff. Nor was there advice given on the basis for compensatory payments.

Furthermore, the council said there was a "very optimistic" analysis offered by officers of the former chief executive's position in the event of an ET claim in the absence of established facts or any information on any failings or wrongdoing by the council and no legal advice provided on the merits and chances of success.

The report to the Appointments Committee also contained no mention of efforts made to negotiate or secure a smaller financial settlement, or whether the option of seeking to negotiate was explored at all.

"In effect, no information was provided to members as to whether the former Chief Executive's exit could have been secured at a lower cost," the council said.

On top of this, the council concluded that the process for convening the meeting (i.e., notice and dispatch of agenda and report) of the Appointment Committee did not meet the requirements of the Constitution and "was potentially unlawful".

It said that the decision to title the particular meeting as 'Governance Matters' appears "misleading and a more appropriate title would have been 'Employee Settlement Agreement' or 'Settlement Agreement relating to an Employee'".

Furthermore, the council’s response raised concerns about how the former council leader – who was involved in the circumstances that gave rise to the settlement – chaired the Appointments Committee.

It noted that there should be "serious consideration" given to how the council manage any likely conflicts of interest by ensuring individuals who are the subject of the complaints play no role in deciding whether those complaints should be settled by making an award to the complainant from public funds.

According to the council, extensive external legal advice was provided on the terms of the settlement, which was "adequately reflected" in the report seen by the Appointments Committee.

In this context, the council said the Appointments Committee's decision was not irrational, and it is "within scope of the decision that a reasonable local authority could have made at that time and with the information provided".

The council’s response continued: "The decision made to approve the terms of the settlement at the time (albeit tainted by poor and inadequate advice in the officer report) was lawful.

"However, for the avoidance of any doubt, for the reasons set out above and considering the Reports in the Public Interest in 2020 and 2021, the Council should not have agreed to settlement payments,” it concluded.

According to the council’s response, proper records were not kept of the conversations between the Leader, Monitoring Officer, former Chief Executive, Section 151 Officer, and Director of HR relating to the termination.

"Democratic Services must attend the closed session of meetings to make sure proper minutes are taken of the deliberations that informed the decision made," the council later stated.

In light of its conclusions, the response said Croydon must now "assure itself" of the following:

1. The requirements of the statutory guidance on special severance payments are embedded into its policies, practice, and procedures.
2. That proper records are kept of any conversations, discussions, or meetings of any potential settlement agreements with an employee.
3. That reasonable enquiries are made to establish all the facts, events, and circumstances that give rise to any proposed settlement agreement, including any wrongdoing by the parties involved.
4. That legal advice is sought on merits and chances of success of any potential claim against the council and quantum of damages awarded. This should inform the decision on any potential settlement payment.
5. There is compliance with the governance arrangements relating to the decision-making on settlement payments.
6. That officers and members that are the subject of the dispute are not involved in the decision-making relating to the proposed settlement agreement.
7. That Democratic Services attend both the open and exempt part of any committee meeting for approval of settlement payments. That proper minutes of the meeting are taken so that there is an understanding of the reasons for the decision and the deliberation by the committee.

The Appointments Committee's August 2020 decision came just two months before the council's external auditor raised concerns about Croydon's financial position, which has since led the council to issue three section 114 notices.

Publication of the council’s response to the external auditor’s queries comes just over two weeks after Croydon issued its third section 114 notice while announcing it is "financially and operationally unsustainable".  

According to a report published last month (30 November), Croydon cannot balance its budget and needs to reduce its spending by £130m in the next financial year alone – a situation it described as "simply untenable out of a net budget of some £300m".

Adam Carey