The out of court settlement follows a historic High Court judgment 18 months ago which ruled that Northumberland County Council was liable for breakdowns suffered by John Walker, a social work manager - the first time an employer was found legally liable for stress.
The council was due to appeal against the decision next month but yesterday struck an agreement with Mr Walker.
In a recent document the Health and Safety Executive estimated that stress now costs British industry around pounds 7bn a year and most of the country's unions are preparing cases for court.
Mr Walker, who has worked as a decorator since he retired on medical grounds, said yesterday that he was no longer capable of holding down a job which involved a lot of pressure. "That part of me has been permanently damaged," he told a press conference in London.
The former social worker said that his job became impossible when the population of Blyth Valley, the area for which he was responsible, grew from 65,000 to 80,000 and the number of children on the abuse register jumped from 15 to 88. Repeated requests for extra staff were ignored despite the six-fold increase in his caseload.
He suffered his first nervous breakdown in November 1986, but when he returned to work four months later the authority failed to reduce his load. He suffered a second breakdown and was retired on medical grounds in May 1988.
Unison, the public service union, successfully argued in the High Court that his illness was caused by the negligence of the county council which had a duty to protect him from unacceptable levels of stress.
At the height of his mental anguish Mr Walker suffered bouts of uncontrollable weeping, anxiety attacks, insomnia and an inability to think coherently.
Mr Walker, a 59-year-old father of four, yesterday described his relief that the case had been settled after a eight year battle. He said his faith as a practising Christian had helped him to cope.
If he had stayed in social work he would have been earning around pounds 28,000 a year now, whereas his income as a decorator was around pounds 12,000. He said he would spend the money on a car, house improvements and a holiday with his wife.
Roger Poole, assistant general secretary of Unison, described the settlement as a "capitulation" by the council and warned employers they were now responsible for the mental health of their employees as well as their physical safety at work. Most of the big unions had hundreds of cases of work-related stress, he said.
A spokesman for Northumberland County Council said the level of the settlement reflected the risk to both sides of going to the Court of Appeal with the case. The level of compensation represented a "significant reduction" on the potential level of compensation, he said.Reuse content