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Restricting exit payments in the public sector

As most public sector organisations will be aware, the Government has been considering a cap on public sector exit payments of £95,000 since 2015. In April 2019, the government launched a further consultation on draft Regulations to introduce the cap and the consultation closed on 3 July 2019. The consultation received around 600 responses in total and last month the government published its response.

The Small Business Enterprise and Employment Act 2015 (as amended by the Enterprise Act 2016) gives the government the power to implement a cap.

The government will proceed in taking forward the regulations through Parliament and updated supporting documents, including guidance, will be published alongside the regulations coming into force. The final regulations will include details on when the cap will come into force.

Scope:

Following consultation, the government has decided to no longer implement the cap in two stages and will instead capture the whole public sector as soon as possible, with few exceptions. The final schedule listing all public sector bodies the cap will apply to is contained within the regulations.

The Armed Forces, the Secret Intelligence Service, the Security Service, and Government Communications Headquarters will continue to be exempted due to the unique natures of the careers of their staff and the core role of compensation and resettlement packages within remuneration arrangements. The government expects that these bodies will ensure they are making value for money exit payments that are fair to the taxpayer.

Payments:

The cap of £95,000 will apply to the aggregate sum of payments made in consequence of termination of employment, including:

• Redundancy lump sums
• Pension top-up payments and pension strain payments if they involve a cost to the employer
• Payments made under settlement agreements or ACAS or COT3 agreements
• Severance and ex gratia payments
• Payments in the form of shares and share options
• Payments on voluntary exit.
• Payments in lieu of notice that exceed a quarter of the employee's annual salary
• Any other payments made in connection with termination of employment or loss of office.

The cap also applies where two or more relevant public sector exits occur in respect of the same person within any period of 28 consecutive days. The total amount of all exit payments made to that person must not exceed £95,000.

There have been concerns raised in relation to whether the cap could be seen as discriminatory, in response to this, the government has expressed its expectation that pension schemes, employment contracts, and compensation schemes will be amended to reflect the introduction of the cap. Furthermore, the cap will take precedence over existing contractual agreements where they are less stringent than the exit payment cap regulations.

Relaxation of the restrictions:

The waiver process is designed to ensure that the cap can be relaxed in exceptional circumstances where it is necessary or desirable. The power to relax the cap may be exercised by a Minister of the Crown unless the regulations provide for that power to be exercised ay another person.

A minister will be required to relax the restrictions if the obligation to make a payment arises as a result of TUPE, or where the payment relates to a whistleblowing or discrimination claim and the minister is satisfied on the balance of probabilities that an employment tribunal would make an order of compensation if it heard the complaint. The employer will need to legal advice available to the minister to confirm the likelihood of a successful claim.

Where the restrictions are relaxed, the public sector body must keep full records for three years.

For more information contact Laura Cieplak in our Public Sector department via email or phone on 01772 220188. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

Learn more about our Public Sector department here

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