Cap on public sector exit payments—Guidance and HM Treasury Direction published30/10/20
The draft Restriction of Public Sector Exit Payments Regulations 2020 (“the Regulations”), capping public sector exit payments at £95,000 will come into force on 4 November (as reported in our previous insight on 15 October 2020).
The accompanying Government Guidance and HM Treasury Directions (published on 28 October 2020) have now been published.
The Government Guidance confirms that:-
- Existing contractual terms and agreements that require payment of sums on exit that exceed the cap will be unenforceable.
- The cap will apply to exits that take place on or after 4 November 2020, regardless of any prior negotiations or contractual agreements between employers and employees, unless an exemption applies or permission to relax the cap is granted.
Should employers have any planned redundancies, retirements or agreed exits that may be affected by the Regulations, we recommend that legal advice and input from pension providers is sought as early as possible on the potential impact and whether it is possible and appropriate to submit an application for the cap to be relaxed in individual cases.
Other points in the Government Guidance to note:
- The obligation to cap an exit payment only applies to the public sector authorities listed in Schedule 3 of the Regulations.
- A PILON payment that represents up to a quarter of the individual’s annual salary is exempt from the cap. Only the remainder of any PILON is included.
- Salary, as defined by the Regulations, includes benefits in kind.
- Employers have the flexibility to decide if and how the cap applies to each element of the exit payment or payments - there is no prescribed order of priority (save that the reduction of any statutory redundancy payment is prohibited).
- Record keeping - employers must keep a record of exit payments and the Regulations require that records are kept in cases where the cap is relaxed for a minimum of three years.
- Transparency – employers must publish information about any decisions to relax the cap and the Government recommends that this is done in their annual accounts.
- Any payment that is made that exceeds the cap and is not compliant with the Regulations or HM Treasury Directions shall be considered “a payment beyond the organisation’s legal competence” which may result in sanctions being imposed by HM Treasury. Authorities are also required to carry out a value for money assessment on whether to pursue a civil claim for repayment.
- Relaxation of the cap (on one or more of the limited mandatory or discretionary grounds) is expected to be granted only in exceptional circumstances that meet the criteria in the guidance.
- All applications for a decision to relax the cap must: follow the prescribed process; be supported by a business case, a value for money assessment and appropriate evidence; and only be made by a Minister for the Crown or a delegated authority.
In the meantime, the British Medical Association’s (BMA) challenge of the Government’s decision to impose the cap is ongoing. We understand that UNISON (and other unions) has also written to the Treasury Solicitor requesting clarity on a number of points, which may pave the way for further legal action.
Both the Government Guidance and HM Treasury Directions can be found here.
How Capsticks can help
Capsticks has significant experience in advising on the issues arising out of termination of employment in the public sector, including drafting policies and procedures, advising on the approval process and drafting and negotiating termination arrangements for departing staff. For further information please get in touch with Victoria Watson, Alistair Kernohan or Chloe Edwards.