The palaver of public sector exit payments
What a palaver. The Government has now been consulting about reforming the entitlement to public sector exit payments for over 18 months. The…
What a palaver. The Government has now been consulting about reforming the entitlement to public sector exit payments for over 18 months. The principles and drivers for change are, at least, pretty clear. The proposition goes like this: in times of austerity should the public sector be paying out vast sums in redundancy pay only for the individuals who have received significant pay offs to return to work in the public sector, and sometimes for the same organisations, within weeks of having left? Come to think of it, how can such significant redundancy or exit payments be justified in the first place? In times of austerity, everyone’s belt needs to be tightened and those working in the public sector should not be an exception. At least that seems to be the Government’s theory. To date, it seems strangely reluctant to get on and implement the changes they say are needed to back it up.
What’s on the agenda?
Two of the headline changes were due to come into force on 1 October 2016. These are:
Cap on public sector exit payments
The essential idea here is that there will be a global maximum exit payment – with a ceiling of £95,000. This sounds like a very big number but when you take into account that this sum is to include pay in lieu of notice and the cost of any pension related payments or enhancements, as well as redundancy payments themselves, it has the scope to impact upon many workers in the public sector. The idea is simple: your total redundancy or “exit” package cannot, by law, exceed £95,000, irrespective of the contract you might have agreed.
Repayment of exit payments
The idea here is that, if senior individuals leave the employment of the public sector and receive severance or exit payments, such payments would be repayable if the individual returns to work in any part of the public sector within 12 months thereafter. This provision is aimed more squarely at senior employees only as there is a salary threshold of £80,000 per annum before the provisions will apply.
Both of these measures were due to be implemented on 1 October 2016. We still do not have an implementation date for either.
What’s the problem?
The Government risks significantly displeasing public sector workers who have many years of service by unilaterally reducing their entitlement to redundancy payments. Assuming the Government is not overly concerned about that, what are the other practical issues that might arise and which may be giving the Government some pause for thought before seeking to implement these changes?
In relation to the £95kcap there is the question of how the Government gets around the fact that the imposition of such a cap would put a coach and horses through the contractual entitlements of many public sector workers. A simple answer to this is that the Government can, if they are so inclined, enact primary legislation to change the law. It may be that the anticipated unpopularity and/or outcry from public sector workers may be giving the Government pause. It may be that the Government does not anticipate an easy passage through the House of Lords for such a Bill.
However, there are greater practical hurdles to overcome in relation to the repayment proposal. The most obvious obstacle is how this will actually work in practice. If a public sector worker leaves their first employer, takes their severance payment and does not disclose this fact to the prospective new public sector employer, how will they know? Unless there is to be a nationwide database recording such payments (and how any such database would get around data protection issues is another story) how will this be policed? There is also the question of how repayment itself would be managed. The employee would be obliged to repay the termination payment to their former employer. What if the employee chooses not to repay? Would the former employer be obliged to pursue (and potentially issue legal proceedings against) their former employee? Where is the incentive for them to do this, when money is already tight?
Yet further practical issues might arise – what if the employee has spent their severance payment on a round the world cruise? What if they have simply used the money to pay off their mortgage? Is your severance package still repayable if you can prove that you have spent all of the money?
Does this mean the public sector employees would be essentially obliged to not spend the money for the first 12 months following the termination of their first employment, so they still have the cash ready to repay it? Would they perhaps be entitled to repay by instalments? Would it become a debt on their estate at death? At present there is no guidance in relation to these issues, which may be another reason why the Government seems to be ‘soft pedalling’ when it comes to implementation of the changes.
It may, of course, be that the Government is relying upon the goodwill of public sector employees to admit to having received an exit payment previously and voluntarily entering into beneficial repayment arrangements with their former employer. At a recent conference I took a small and entirely unscientific straw poll amongst public sector employees, to gather their views about the proposal. It was pretty unanimous. No-one, it would seem, would be inclined to repay unless they were compelled to. Indeed, there was a fair degree of annoyance that redundancy rights which individuals believe they have worked for many years to build up would essentially be swept away. Their perspective was that if they have been made redundant they should receive what they are due and not be penalised if they subsequently have the get up and go to find another job.
In the meantime - the “Framework” awakens
As the ‘guess the date’ debate about the first two changes rumbles on, the Government did publish a response to a different consultation paper – on 26 September 2016. Whilst this paper was noticeably silent on the implementation date for the ‘repayment’ and ‘£95k cap provisions, it heralded a new “framework” for public sector termination payments. This includes:
- A maximum of three weeks’ pay for each year of service (down from four weeks in many public sector schemes);
- A maximum of 15 months’ salary as a termination payment;
- A taper on entitlement as you get closer to normal pension age;
- Caps to pension ‘top ups’; and
- An increased minimum age for access to such pension ‘top ups’.
These are all interesting proposals which would, again, cut across many existing contractual entitlements including several (such as Agenda for Change within the NHS) which have been collectively agreed at a national level and in place for many years.
Implementation, implementation, implementation?
The Government’s approach to introducing the Framework is interesting. Rather than giving a clear start date and promising/threatening primary legislation at this point, instead the Government has instructed all public sector employers to come up with proposals for introducing these changes. This includes, it would seem, specific proposals on the tapering/scaling down of entitlements as individuals get closer to normal pension age which will obviously need to be done carefully given the risk of age discrimination challenges. It also includes sorting out where caps to pension ‘top ups’ can properly be introduced and, indeed, what the minimum age for access to such ‘top ups’ should now be. This will not be easy and brings with it the risk of further damaging industrial relations at a time when most public sector employers seem to be in a state of continuous flux in seeking to deliver greater efficiency, better services and organisational reconfiguration on several fronts.
This is compounded by the Government’s further requirement that within six months of coming up with proposals, public sector employers are required to have "completed negotiations and made the necessary amendment’’. No one seems to be holding their breath waiting for this to happen. My wholly unscientific soundings suggest there is no great impetus or rush to get such negotiations underway or be at the front of the queue to test this out. It is not difficult to see why. Anyone who has observed the junior doctors’ dispute with the NHS can see how easy it is to implement unpopular changes through very public collective discussions.
So, what will happen if public sector employers can’t sort all of this out by the end of next June? The Government has promised primary legislation if public sector employers have failed to implement the changes in good time. Now, where have we heard that before?
Emlyn Williams (firstname.lastname@example.org) is a Liverpool-based Partner in the Employment Pensions and Immigration Team and has extensive experience of advising public sector clients (most notably NHS Trusts). If you have any questions about the potential impact of these proposed reforms on your organisation please get in touch with Emlyn or speak to your usual Weightmans advisor.