Public Sector Exit Pay Cap to be Revoked

The recently introduced £95,000 cap on public sector exit payments will now be revoked. Following an extensive review, the Government has determined that the cap should be disapplied until it can be revoked.

Background

The Restriction of Public Sector Exit Payments Regulations 2020 (the Regulations) were developed from 2014 to 2020 and came into force on 4 November 2020. The Regulations sought to make public sector exit compensation terms fairer, more modern and more consistent. The Regulations imposed a £95,000 cap on public sector exit payments.

However, after only a short period the Government has issued a Treasury Direction and guidance that the Regulations will be revoked and should be disapplied. Concluding the cap may have ‘unintended consequences’.

The Regulations were highly controversial for the public sector. So much so that Lawyers in Local Government and the Association of Local Authority Chief Executives and Senior Managers had issued a judicial review.

Implications for Local Authorities

There is a small but important window for local authorities to consider any exit payments made under the Regulations. Exit payments made between 4 November 2020 and 12 February 2021 may be impacted.

An individual employee who had their exit pay capped because of the Regulations can contact their previous employer directly to request to be paid the full amount that would have been paid if the cap had not been in place.

Local authority employers are encouraged to pay the additional sums to any former employees who had an exit date while the Regulations were in force and the cap was applied.

The guidance does still stress that exit payments should deliver value for money and that employers should always consider whether exit payments are ‘fair and proportionate’.

Comment

While the reversal of this much criticised statutory cap is likely to be widely welcomed by public sector organisations, the abrupt change will cause substantial disruption for those bodies where budgets have already been set for reorganisation or redundancy programmes.

We also consider it is unhelpful for the guidance to suggest that employees subject to the exit pay can re-open any negotiations on their exit pay as one of the primary aims of an exit payment is to create certainty and finality.

Local authorities must now factor into their financial planning the potential additional sums that they may have to pay to former employees who were impacted by the cap.

While this is good news for public sector employees, there is still a prospect that  a cap on public sector exit payments may be reintroduced in the future. HM Treasury has stated they will bring forward proposals at pace on this policy area.

Julie Bann is an experienced employment partner who regularly advises public sector clients on redundancies and employee exit arrangements. Please contact Julie Bann if you wish to discuss the implications of this article in more detail.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any of the issues raised in this article, please contact us today by telephone or email enquiries@sharpepritchard.co.uk.

Posted in Latest news and blog, Local government.