Plans for cap on public sector exit payments resurrected


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The government has launched a consultation on draft Restriction of Public Sector Exit Payments Regulations 2019 and associated draft guidance.

These will introduce a £95,000 cap on exit payments in the public sector. These plans were first mooted in August 2015 and the Enterprise Act 2016 introduced new sections into the Small Business, Enterprise and Employment Act 2015 (SBEEA 2015) empowering the Treasury to make regulations to impose a £95,000 cap on public sector exit payments. The draft Public Sector Exit Payment Regulations 2016 were published but were never made.

The regulations seek to remove statutory redundancy payments from the scope of the cap. Section 153C(1) of SBEEA 2015 contains powers for ministers to relax the cap. Draft regulation 11 and 12 provide further detail, including a requirement that the power only be exercised in compliance with any directions given by the Treasury. The Treasury has issued a mandatory direction requiring relaxation of the cap in the following cases:

  • Where the obligation to make exit payment arises as a result of TUPE.
  • Discrimination and whistleblowing claims, where the minister (or person acting on delegated authority) is satisfied on the balance of probabilities that an employment tribunal would uphold the claim and award compensation.

The minister (or person acting on delegated authority) has discretion to relax the cap where they are satisfied of one of the following:

  • Not exercising the power would cause undue hardship.
  • Not exercising the power would significantly inhibit workforce reform.
  • An agreement to exit was made before the coming into force on the regulations and it was the intention of both parties that the exit would occur before that date, and any delay to the date of exit was not attributable to the employee.

The guidance anticipates that these discretionary relaxations will be exceptional.

There are some important differences to the draft regulations produced in 2016. These include an exemption for payments in lieu of notice that do not exceed one quarter of the relevant person's annual salary. Also, there is no provision making entitlement to an exit payment exceeding the cap unenforceable so a public sector employee may be able to enforce a contractually agreed settlement payment in full, even if it exceeds the cap.

This article is taken from HR Law - May 2019.

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