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Resurrection of the £95k Public Sector Exit Pay Cap

on Thursday, 18 April 2019.

The government is currently consulting on the implementation of a £95,000 cap to exit payments in the public sector. The proposed cap, which will apply to public sector employers including academies, was first devised back in 2015.

Background

Legislation allowing the government to impose a cap on public sector exit pay was brought into force on 1 February 2017. However, until now the government has not sought to utilise this power. The government is currently consulting on Draft Restriction of Public Sector Exit Payments Regulations 2019 and accompanying guidance which will activate the cap. You can view and respond to the consultation here. The consultation is open until 3 July 2019.

The government has not yet indicated when its proposes the cap would come into force, but given that the consultation does not end until July, it is unlikely to be before the autumn Parliamentary term.

Exclusions to Cap

The cap may not be as constraining as first thought. A variety of exit payments are proposed to be excluded from the £95k cap, the main exceptions being:

  • a payment in lieu of notice due under a contract of employment that does not exceed one quarter of the relevant person’s annual salary - aka 3 months' notice pay
  • statutory redundancy payments
  • accrued but untaken annual leave

Once these deductions are made to the overall exit sum, it is likely only to be unusual and/or senior terminations which risk infringing the cap.

Relaxation of the Cap

Employers can apply to the relevant Minister for the cap to be relaxed. It is proposed that approval to exceed the cap should be mandatory when:

  • the exit payment arises as a result of TUPE
  • in respect of discrimination and whistleblowing claims, where the employer has received legal advice that it is unlikely to be able to successfully defend the claim, and the relevant minister is satisfied on the balance of probabilities that an employment tribunal would uphold the claim and award compensation

It is also proposed that there be a discretion to relax the cap, used in exceptional circumstances only, when:

  • not exercising the power would cause undue hardship
  • not exercising the power would significantly inhibit workforce reform

Comment

If any significant exits are in contemplation, employers should calculate whether the exit payment would be caught by the proposed cap and if necessary, plan for the exit to take place before the cap comes into force.

Interestingly, the government has not also resurrected plans to claw-back public sector exit payments if an employee were to re-enter the public sector workforce within 12 months of termination. The draft regulations have also removed any reference to a payment over £95k (in breach of the regulations) being unenforceable in the courts. This means that an employee could sue for a £95k+ agreed exit sum as a contractual debt.


For more information, please contact Helen Clayton in our Employment Law team on 0117 314 5457, or complete the form below.

 

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