Further to our recent article on the public sector exit payment cap, the Government have now announced that the legislation will be revoked on the grounds that it may have "unintended consequences".
Public Sector Exit Payment Cap
The public sector exit payment cap was brought into effect by way of The Restriction of Public Sector Exit Payments Regulations 2020, and came into force on the 4th November 2020.
The new legislation had been many years in the making. Way 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 was largely caused by Government time being consumed by all things Brexit.
The effect of the new legislation was as follows:-
- The capping of exit payments at £95,000.00 for those leaving a public sector position. A total cap of £95,000.00 applied across the board for those leaving more than one public sector position within a 28 days period
- The cap on exit payments applied 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. However, the cap excluded 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
- The cap was waived in what were known as “mandatory cases”, which included Transfer of Undertakings (Protection of Employment) regulations ( TUPE) matters, whistleblowing cases, discrimination cases, and health & safety matters. There was also a discretion to waive the cap, where hardship may be caused or workplace reform could be obstructed.
Criticisms Of The Public Sector Exit Payment Cap
Many criticisms have been made of the public sector exit payment cap. For one thing, it had the potential to generate a lot of additional litigation. This was because, whereas settlement agreements were subject to the public sector exit payment cap, awards made by the employment tribunal and the courts were not. Hence, those unhappy with their exit package had every incentive to litigate.
Moreover, the British Medical Association (BMA) pointed out that: "[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....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."
Furthermore, it was also pointed out by Jon Richards, the head of local government at UNISON, 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.”
Judicial Review
The British Medical Association (BMA), along with UNISON, UNITE, the GMB, the Association of Local Authority Chief Executives (ALACE), and Lawyers in Local Government (LLG), sought, and were granted permission, to pursue a judicial review of the public sector exit payment cap regulations.
At the time that permission was granted by the High Court, Quentin Baker, the President of LLG, stated: "We are pleased that this important issue which has a potentially significant impact upon our members’ pension benefits will be subject to full consideration in the High Court." Ian Miller, the Honorary Secretary of ALACE, added: "Deep concern about the regulations is shared widely across unions in the public sector, and it is important that the courts now clarify whether the Government will have to change its approach."
Public Sector Exit Payment Cap Revoked
With judicial review proceedings underway, the Government carried out a review of the public sector exit payment cap.
On the 12th February 2021, the Government announced that the legislation would be revoked. It stated: "After extensive review of the application of the Cap, the Government has concluded that the Cap may have had unintended consequences and the Regulations should be revoked. HMT Directions have been published that disapply the Cap until the Regulations have been revoked."
The Government has yet to confirm whether the cap will return at some point in the future, with changes, or whether it has been abandoned altogether.
In the meantime, the Government have indicated that those who have been subjected to the cap between the 4th November 2020 and the 12th February 2021, should be paid any extra monies that would otherwise have been paid to them, had they not been denied as a result of the cap. It stated: "Given that the cap has now been disapplied, it is open to employers to do [pay the additional monies] and HM Treasury’s expectation is that they will do so."
Reaction
In revoking the public sector exit payment cap, the Government state that: "For the avoidance of doubt, it is still vital that exit payments deliver value for the taxpayer and employers should always consider whether exit payments are fair and proportionate. HM Treasury will bring forward proposals at pace to tackle unjustified exit payments."
Nevertheless, the general secretary of Unison, Christine McAnea, contends that: "It’s great the government has finally seen sense and stepped back from this damaging regulation that threatened to blight the retirement of millions of workers. Through no fault of their own, long-serving staff over the age of 55 and facing redundancy would have been hit by the regulation. Because they’re obliged to take their pensions if they lose their jobs, when combined with redundancy payments the final amount could have exceeded the £95,000 cap."
