Government Reforms (1): Public sector exit payments – CAPS LOCK ON…

What do we already know?

We updated you in our October 2015 Newsletter Government reforms (1): Cap on exit payments and May 2019 Newsletter Government Reforms (1): Public Sector Exit Payments – CAPS LOCK ON… that the Government proposed that exit payments to public sector workers should be capped at £95,000 (which include pay in lieu of notice, redundancy and ex gratia payments).  The expectation was that the cap would likely become law in early 2017.  However, there was a delay and the Government’s consultation on the cap only closed on 3 July 2019.

What’s new?

On 21 July 2020, the Government finally published its Response to the Consultation on capping public exit payments (available here).  A couple of days later the Government published its latest draft of the relevant legislation, The Restriction of Public Sector Exit Payments Regulations 2020, available here.

The £95,000 cap will apply to the vast majority of public sector authorities and offices that are set out in a lengthy schedule to the draft 2020 Regulations. The cap will apply to any non-exempt termination payments that represent a cost to the employer, including redundancy payments, employer pension contribution top-up payments, ex gratia sums, voluntary exit payments, a payment in lieu of notice that exceeds one quarter of the employee’s annual salary, and shares and share options.

Any compensation payments made under the ACAS arbitration scheme or a settlement or conciliation agreement are also caught, but a special mandatory relaxation of the rule will apply in discrimination, whistleblowing, and health & safety detriment or dismissal claims. Relaxation of the rules will also be applied to payments made as a result of TUPE and there will be a discretion to relax the rule if applying it would cause undue hardship or significantly inhibit workforce reform.

Payments specifically exempt from the cap include death-in-service payments, injury compensation, pay in lieu of untaken holiday, payments made in compliance with a court order, and pay in lieu of notice that does not exceed one quarter of the employee’s annual salary.

Where two or more public sector exits occur in respect of the same person within a period of 28 consecutive days, the total amount of the exit payments made to that person cannot exceed the £95,000 cap, with the draft 2020 Regulations setting out the sequence in which exit payments will be considered paid when applying the cap.

Public sector workers will be obliged to disclose their departure and eligibility to an exit payment to any other interested or affected public bodies, for example those responsible for paying them as office holders.