Background

The proposed changes are stated to be part of the government's wider ambition to reduce the use of large exit payments in the public sector and follows the previous revocation of the Restriction of Public Sector Exit Payments Regulations 2020 from 19 March 2021.The 2020 Regulations imposed a cap of £95,000 for public sector payments in relation to exits that took place on or after 4 November 2020. Unions sought to challenge the legality of the Regulations but the Government removed the cap and revoked the Regulations before the High Court had determined the application.

In May 2021 , the Government published new guidance for public sector employers on the making of special severance payments. The guidance, which can be found here, supplements the special severance guidance set out in Annex 4.13 of Managing Public Money. It emphasises that special severance payments should only be made in exceptional circumstances, and where there is a clear justification for doing so. Such payments will always require approval from HM Treasury.

The proposals

• High value exits - where an employee’s exit package involves a total payment of more than £95,000, approval will be required from the relevant  Secretary of State and the payment must be reported to HM Treasury. This is a significant change from the current rules, which do not require approval for contractual exit payments except  (1) NHS Trusts who must obtain HMT approval for any contractual PILON payments in excess of 6 months for director level and 3 months for other staff (this requirement does not apply to Foundation Trusts), and, (2) ministerial approval to be sought by HM Treasury officials in cases where any public sector exit package includes a special severance payment at, or above, £100,000 and/or where the employee earns over £150,000.
• Special severance payments - HM Treasury approval must be sought in good time to allow reasonable consideration of the case, and negotiation mandates to settle must be sought in advance. Any payment proposed as part of a settlement agreement in excess of contractual, statutory, and other entitlements is a special severance payment and authorisation must be given in writing by HM Treasury before such a settlement is agreed.
• Where a total exit payment exceeds £95,000 and includes a special severance element, approval will be required from both a Secretary of State and HM Treasury. Employers will therefore have to be well prepared for any exits to ensure that they have enough time to obtain both the advance approvals required before the proposed exit date.
• Recovery - the consultation sets an expectation that recovery of special severance payments should be considered across central government, where such payments are agreed and an official may be re-employed in the public sector. This proposal is currently limited to central government, but if it was extended it would significantly broaden the existing NHS repayment obligations (the obligation on employers to ‘clawback’ / and on individuals to repay contractual redundancy payments and special severance payments if the individual returns to NHS employment within 12 months and/or before the end of the compensation period).

How Capsticks can help

Capsticks has significant experience in advising on the issues arising out of termination of employment in the public sector, including advising on the approval process and drafting and negotiating termination arrangements for departing staff. For further information on how the current rules and the proposed changes might affect your organisation, please contact Nicola Butterworth, Alistair Kernohan or Chloe Edwards.