Severance and executive pay: the key employment law changes in the Academy Trust Handbook 2026

Tighter rules on severance payments

The new Handbook expands the provisions on severance payments and supplements the existing rules with new express record keeping obligations.

Previous versions of the Handbook gave academy trusts delegated authority to make severance payments but required prior approval to be obtained from the DfE if certain financial thresholds were met or if payments were novel, contentious or repercussive. The Handbook required trusts to follow the DfE's Guide to academy trust severance payments and the Treasury's Guidance on Public Sector Exit Payments. This has all been retained in the 2026 Handbook but has been supplemented with new express record keeping obligations.

Trusts must now record and retain evidence of the management and approval process, including legal advice on the likelihood of successfully defending any claim by the employee, the reasons for any severance decision, the supporting evidence and demonstrating how value for money was achieved. Where a legal assessment suggests the trust has at least 50% chance of being successful, a settlement should not be offered. We have updated our checklist for academies making payments under settlement agreements to assist trusts in complying with their record-keeping obligations.

The Handbook continues to say that Severance payments should not be made where they could be seen as a reward for failure, such as gross misconduct or poor performance. The exceptions are narrow: in a gross misconduct case, a payment can be justified only where legal advice is that the employee is more than 50% likely to succeed at tribunal because of procedural failings; in a poor performance case, the acceptable comparison is the time and cost of running a full capability process. The rationale for any exit payment needs to be recorded before terms are agreed, not retrospectively.

New limits and approvals needed on executive pay

Trusts were already required to make sure senior pay was fair, evidence based, and defensible. From 1 October 2026, executive remuneration must not increase at a faster rate than that of the trust's own teachers unless there is clear justification and the trust has obtained the DfE's advance approval.

The DfE published detailed guidance here and here at the end of September 2026 which confirms that the comparison between executive and teacher pay will be trust-specific: the proposed executive increase is measured against the average actual percentage increase across the trust's teaching workforce over the same period, reflecting real pay changes, progression and awards actually applied, not simply the national pay award. Trusts should be ready to explain their methodology and evidence if asked.

Also, from 1 October 2026, for new appointments where remuneration would exceed £174,000 (pro rata for part-time staff), or where performance-related pay would exceed £25,000, DfE approval must be obtained before the post is advertised. "New appointments" is defined broadly: it captures external recruits, internal promotions, newly created roles and lateral moves. The evidence for a highly paid position, therefore, has to be settled at the outset rather than once a preferred candidate has been identified. The DfE asks that a minimum of 20 working days be allowed for a decision.

Because approval must precede advertising, adverts and offer documentation should be drafted so as not to create a contractual entitlement before approval is in place. Existing contractual pay arrangements are not overridden by the controls, but where a contract would take an executive's pay above the teacher rate, the trust must still apply to the DfE for approval, evidencing the contractual obligation.

Trusts must continue to publish, in £10,000 bands, the number of employees whose benefits exceeded £100,000 in the year to 31 August, and "benefits" expressly include termination payments, which links this obligation back to the severance rules set out above.

What to do now

With the changes live from 1 October 2026, trusts should review their severance and settlement processes so that they are prepared to evidence the justification for any severance payments and ensure that DfE approval is sought promptly and at the correct point where required.

On pay, trusts should revisit their pay policy and remuneration-committee arrangements so that high-pay approvals are built into the recruitment timeline before advertising, and ensure the teacher-comparison methodology is in place. The theme across both areas is documentation: you should be able to show, in writing, the reasoning and evidence behind each decision.

How we can help

As mentioned above we maintain a checklist for payments under settlement agreements, mapped to the 2026 Handbook's severance requirements, which trusts can use to work through whether a proposed payment is within their powers and whether DfE approval is needed.

If you would like to know more, or would like help reviewing your severance or executive pay processes, please contact Nick Murrell.