The Restriction of Public Sector Exit Payments Regulations have been in force since 4 November 2020. They provide that any relevant authority must not make an exit payment to a person which exceeds the exit payment cap of £95,000 in respect of a relevant public sector exit.
On Friday, 12 February 2021, the Government announced that the Regulations 2020 will be revoked. An HM Treasury Direction, also published on 12 February, disapplies the cap from that date until the Regulations have been revoked.
The Government announced that after an extensive review of the application of the cap, they had concluded that the cap may have had unintended consequences and the Regulations should be revoked. The Regulations had been criticised and unions were seeking a judicial review on the basis that the Regulations had significant pension implications, in particular for long-serving public sector workers facing redundancy.
The Government have, however, indicated this may not be the end of the matter as it states in the guidance that accompanied the Treasury Direction that it “will bring forward proposals at pace to tackle unjustified exit payments”. It also emphasised that it is still vital that exit payments deliver value for the taxpayer and employers should always consider whether exit payments are fair and proportionate.
What about exit payments which have been capped already?
The Government Guidance states that any employee who was affected by the cap while it was in force, should request the amount he or she would have received, had the cap not been in place, by contacting his or her former employer directly. The Guidance also encourages employers to pay to any former employees to whom the cap was applied the additional sums that would have been paid but for the cap.
What does this mean for employers?
Employers who are approached by former employees about a termination payment that has been capped are advised to take further advice from their legal advisors in these instances particularly where they have agreed a termination with the employee and payments have been made following a Settlement Agreement or ACAS COT 3 Agreement.
