Restrictions to Public Sector Exit Payments

The Small Business Enterprise and Employment Act 2015 (as amended by the Enterprise Act 2016) gives Government the power to implement a cap on exit payments within the public sector.

Government recognise the importance of exit payments in enabling public sector employers to reform and react in light of new circumstances, together with providing employees with support to find new employment or ‘bridging the gap’ until retirement age.

However, for some time Government have also identified that many high-level exit payments, some of which amount to six figures, are neither proportionate nor offer good value for money for taxpayers.

The Restriction of Public Sector Exit Payments Regulations 2020

Following a consultation period regarding the proposed cap, the response to which can be found here , Government published the above draft Regulations on 27th July 2020.

The Regulations prevent any relevant authority (defined in the Regulations, but including schools, academies and Colleges), from making an exit payment to a person exceeding the exit payment cap. Whilst the exit payment cap is expected to be £95,000, Government will keep this under review.

What payments are expected to be subject to the cap?

The draft Regulations suggest the following as possible payments that would be subject to the cap:

• Any severance or ex-gratia payment;
• Any payment on voluntary exit;
• Any payment in lieu of notice under a contract of employment (where this exceeds one quarter of the individual’s salary);
• Any payment to reduce or remove an actuarial reduction to a pension on early retirement (i.e. a ‘pension strain’ cost);
• Any payment on account of dismissal by reason of redundancy;
• Any payment to extinguish liability under a fixed term contract;
• Any other payment in consequence of termination of employment, or loss of office.

However, there are also a number of exceptions to the above including:

• Statutory redundancy pay;
• Payment in respect of death in service;
• Payment in lieu of accrued but untaken annual leave;
• Any payment in lieu of notice under a contract of employment (subject to this being less than one quarter of the individual’s salary);
• Any payment in compliance with a court or tribunal order.

Potential waivers

On grounds of public interest, it is expected that there will be a mandatory waiver on any payment attributable to discrimination, health and safety detriment and unfair dismissal cases, together with whistleblowing claims although confirmation is awaited.

There are also expected to be grounds for certain authorities to relax restrictions on the cap in exceptional circumstances, however such a power would be subject to strict decision making and record keeping obligations.

What is next?

Whilst not yet in force, employers to be affected by the proposed cap on exit payments should be alert to the impact of the draft Regulations, both regarding the nature of any future package negotiated with an individual and in the event of future redundancy situations.

Regulations are due to progress through Parliament, with additional guidance and supporting documentation being issued when the Regulations become effective.

If you require specific legal advice please contact our Employment & HR team on 01228 552222 or hello@burnetts.co.uk.