The public sector exit payment cap has finally been implemented by the Government and came into force on the 4th November 2020, with the The Restriction of Public Sector Exit Payments Regulations 2020 being signed into law on the 14th October 2020. This comes almost 4 years after the original legislation to facilitate the regulations was passed.
The Public Sector Exit Payment Cap
Back on the 1st February 2017, The Enterprise Act 2016 (Commencement No. 2) Regulations 2017 came into force by way of statutory instrument (SI 2017/70). Section 41 of that legislation inserted sections 153A, 153B and 153C into the Small Business, Enterprise and Employment Act 2015. Given this, the Government had had the necessary powers to implement the Public Sector Exit Payment Cap since the the 1st February 2017.
The delay in implementing the public sector exit payment cap was largely due to Brexit. Nevertheless, a consultation was eventually launched on the 10th April 2019, which closed on the 3rd July 2019, with the Government response being issued on the 21st July 2020
The provisions of the legislation are as follows:-
- Exit payments for those leaving a public sector position are capped at £95,000.00, and for those leaving more than one public sector position within a 28 days period, a total cap of £95,000.00 applies across all of those positions
- The cap applies to redundancy payments, ex gratia payments, employer pension contributions, voluntary exit payments, severance packages, settlement agreements, shares/share options, and pay in lieu of notice (PILON) in excess of a quarter of the employee's annual salary. Nevertheless, the cap does not apply to personal injury compensation, PILON up to a quarter of annual salary, death in service payments, pay in lieu of accrued but untaken holiday pay, and damages awarded in accordance with an employment tribunal or court order
- In what is known as "mandatory cases", the cap is waived. These include Transfer of Undertakings (Protection of Employment) regulations ( TUPE ) matters, whistleblowing cases, discrimination cases, and health & safety matters. There is also a discretion to waive the cap, where hardship may be caused or workplace reform could be obstructed.
The Regulations Encourage Litigation
The fact that payments made under settlement agreements are subject to the the public sector exit payment cap, but awards made by the employment tribunal and the courts are not, is bound to lead to those who are unhappy with their exit package, to litigate. The emphasis should be on avoiding litigation, not promoting it, and this legislation completely undermines that principle.
Reaction
The British Medical Association (BMA) is seeking permission for a judicial review of the public sector exit payment cap regulations. The BMA state: "[The regulations] ignore...existing contractual obligations, including agreed redundancy rights or where the employer otherwise accepts that the worker is owed the sums as agreed compensation for the employer’s unlawful acts....The Government’s intention to seek to override potential payments due to exiting employees is unlawful as the Government cannot interfere with and override rights agreed in workers’ employment contracts. Doctors’ contracts of employment are nationally negotiated by the BMA and NHS Employers and are the result of lengthy negotiations which take into account the needs of the NHS, NHS Employers and doctors. The BMA also argues the proposed regulations are contrary to human rights legislation as they put public sector employees at a significant disadvantage in seeking to enforce their rights to peaceful enjoyment of their property, as compared to private sector workers."
Jon Richards, the head of local government at UNISON, added that: "In local government, the £95k cap includes pensions strain payments – money paid by the employer to the pension fund if someone aged 55 or over is made redundant and hence takes an unreduced early pension. This is money that the individual never sees – but they will be penalised anyway."
