Government resurrects plans for cap on public sector exit payments

Summary 

The Government has launched a consultation on the Restriction of Public Sector Exit Payments Regulations 2019 and associated draft guidance, which resurrect plans to introduce a £95,000 cap on exit payments in the public sector. The consultation closes on 3 July 2019.

Facts 

Public Sectors can include those in local and national councils, NHS hospitals and clinics, emergency services, schools and much more.

It is for these workers that exit payments may be capped, following the consultation, at £95,000. The proposed exit payments that will be subject to the cap are:

  • Any payment on account of dismissal by reason of redundancy (but with exceptions in respect of statutory redundancy payment entitlement; see Statutory redundancy payments).
  • Any payment made to reduce or eliminate an actuarial reduction to a pension on early retirement or in respect to the cost of a pension scheme of such a reduction not being made.
  • Any payment made pursuant to an award of compensation under the ACAS arbitration scheme or a settlement or conciliation agreement (but special rules apply in discrimination and whistleblowing claims; see Discrimination, whistleblowing and TUPE).
  • Any severance payment or ex gratia payment.
  • Any payment in the form of shares or share options.
  • Any payment on voluntary exit.
  • Any payment in lieu of notice due under a contract of employment that exceeds one quarter of the employee's annual salary.
  • Any payment made to extinguish any liability to pay money under a fixed-term contract.
  • Any other payment made, whether under a contract of employment or otherwise, in consequence of termination of employment or loss of office.

The following cases may be subject to a relaxation of the cap:

  • Where the obligation to make the exit payment arises as a result of TUPE.
  • Discrimination and whistleblowing claims where the tribunal would uphold the claim and award compensation. 

The following descriptions of payment are not exit payments under the draft regulations:

  • Any payment made in respect of death in service.
  • Any payment made in respect of incapacity as a result of accident, injury or illness (not including injury to feelings).
  • Certain payments made under various firefighter pensions rules.
  • Certain payments in the judiciary.
  • A service payment made in respect of annual leave due under a contract of employment but not taken.
  • Any payment made in compliance with an order of any court or tribunal.
  • A payment in lieu of notice due under a contract of employment that does not exceed one quarter of the relevant person’s annual salary.
  • Statutory redundancy payments: A statutory redundancy payment on its own would not come close to breaching the cap, but, if there are other exit payments being made, the regulations require the cap to be applied to one or more of those other exit payments, and not the statutory redundancy payment.
Outcome

As it currently stands, the Government does not believe that the majorities of six figure exit payments, which are far in excess of those available to most workers in the public sector or wider economy, are proportionate or provide value for money for taxpayers.

Accordingly, these regulations will help public sector employers to ensure exit payments represent value for money to the taxpayer who funds them.The facts above outline the potential changes, subject to any comments received in the consultation, to the law relating to exit payments. It has been said that these changes are long-awaited and that the Government are keen to get the rules onto the statute book.

Implications for Employers

It is important to note that the new regulations do not have any provision making entitlement to an exit payment exceeding the cap unenforceable. It follows that, for example, a public sector employee might be able to enforce a contractually agreed settlement payment in full, even if it exceeds the cap.

Accordingly, due to the differing circumstances in which this consultation addresses, employers are encouraged to keep an eye on and understand its progress both until the 3rd of July and thereafter upon publication of the new legislation.

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