Public sector exit payments

Restriction of Public Sector Exit Payments Regulations 2020 revoked 

What happens when a “long and winding road comes to an abrupt end”.

You have to do a U-turn, of course! Which is exactly what the Government has done in relation to the Public Sector Exit Payments Cap that came into force on 4th November 2020 just over three months ago.

The regulations which brought the cap into force will be revoked and, in the meantime, a Treasury Direction means that the cap will be dis-applied with immediate effect. So, let’s pretend it never happened (notwithstanding the 5+ years of consultation that preceded them hurriedly being brought into effect with just a few months’ notice)…except that some exit payments may have already been affected in the last three months. In those cases, HM Treasury guidance states that ex-employees should contact their former employer to request the additional pay that was withheld due to the cap, and those former employers are encouraged to make up the shortfall.

Guidance on public sector exit payments

Read the full HMT updated guidance on exit payments for employers and employees that have been affected by the cap on exit payments.

Public sector exit payments: New law in force from 4 November 2020

The Restriction of Public Sector Exit Payments Regulations (the Regulations), that have been consulted upon and re-drafted over a period of five years or more, were suddenly laid before Parliament last month and abruptly ‘made’ (or signed into law) last week. Indeed, they are now due to come into force in just one week, on Wednesday 4 November 2020.

The detail

The Regulations will introduce a cap of £95,000 on exit payments in the public sector, including NHS employers.  Most exit payments will be covered by the cap, including redundancy payments and pension top-ups. Payments in lieu of notice up to a quarter of the payee’s annual salary are exempt, but anything above that will count towards the cap.

It appears that the cap will not limit payments made in respect of compensation for discrimination, and whistleblowing claims or where the exit payment arises as a result of a TUPE transfer, but any such payments will need prior approval from HM Treasury. Those who have experience of making such applications know that this is often a difficult and time-consuming process and such applications have no certainty of being granted.  

Exiting public sector employees are required to inform in writing their employers of any entitlement to an exit payment and the amount, as soon as reasonably practicable after the day the exit occurs. Many stakeholders regard this as an unfair burden to place on the individual. Indeed, this is one of the key challenges in the British Medical Association's (BMA) proposed judicial review (see below).

Hurry up and wait

HM Treasury’s accompanying guidance on the operation of the cap is still awaited and NHS Employers has indicated it will produce its own supporting materials once the main government guidance is available; so watch this space for further details!

NHS Employers has also indicated an intention to discuss within the NHS Staff Council the changes required to the NHS standard Agenda for Change Handbook; more watching and waiting.

Finally, on the “waiting” front; we are also still awaiting news of the BMA’s request for permission to challenge the legality of the Regulations via judicial review.

Comment

Many stakeholders have expressed surprise and concern at the speed at which these Regulations progressed through Parliament, after such a protracted and controversial path so far.

We have previously expressed our hope that public sector employers would receive adequate notice of implementation, as contracts, compensation schemes and pension schemes would need to be amended to reflect the changes. However, regrettably, the final phase of these legal changes appears to have been rushed through, with little prior warning.

Whilst the prospect of a cap has been hovering at the edges of public sector awareness for a very long time, employers are practically now left with very little time to prepare.

As the £95,000 cap will take precedence over existing contractual arrangements (where those arrangements are less stringent), many public sector employers will now find themselves in the difficult position of being unable to honour their current contractual commitments to employees.

If you are in the process of negotiating the exit of a senior or long-serving employee whose exit payment may fall into the £95,000 ballpark, we suggest you take urgent advice with a view to resolving matters before the new regulations come into force on Wednesday 4 November 2020.