Exit payments in the public sector

Exit payments (or severance payments) in the public sector have been the subject of much media scrutiny in recent months.

As employment lawyers acting for private and public sector employees, we regularly come up against these issues when it comes to trying to advise on and negotiate settlements or agree termination packages. As trade union lawyers, we are also opposed in principle to any government attempts to water down employee rights.

On 26 September 2016, HM treasury issued its response to a consultation on reforms to public sector exit payments. The proposed changes will affect the civil service, the NHS, teachers, police, firefighters, members of the armed forces and employees of local authorities.

The government proposals are as follows:

1. Setting a maximum tariff for calculating exit payments at three weeks' pay per year of service.
2. Introducing a cap of up to 15 months' salary on all redundancy payments.
3.  Setting a maximum salary for the calculation of exit payments.
4. Tapering the amount of lump sum compensation an individual is entitled to receive as they get close to the normal pension age or target retirement age of the pension scheme to which they belong, or could belong, in that employment.
5. Requiring employer-funded early access to pensions to be limited or ended, denying access altogether by increasing the minimum age requirements or introducing more flexibility (which I interpret as ‘restrictions’) as to the circumstances in which pension top ups are available.

The government says these reforms could achieve savings of up to £250 million a year and bring public sector exit terms in line with those in the private sector.

And let’s not forget, the changes proposed above are in addition to two other recent initiatives:

1. Imposing a cap of £95,000 on the total aggregate value of most public sector exit payments.
2. High-earning employees leaving the public sector to repay some or all of their exit payments if they return to public sector employment within 12 months of their departure.

The government received around 350 responses to the consultation on public sector exit payments. The majority opposed the proposals. However, despite that opposition (and as is commonly the case these days) the government has suggested that it will nevertheless be going ahead with some or all of the changes. I begin to wonder whether responding to these consultations is at all worthwhile.

Aside from the obvious attack on public sector pay and benefits, two major issues were raised in opposition to the proposals:

1. What about collective agreements?

The public sector has the benefit of numerous workplace collective agreements, carefully negotiated between employers and trade unions, often over decades, and which afford employees significant redundancy benefits. Those collective agreements are industry-specific, balancing the needs of the employee and employer. Imposing restrictions that cut across these agreements will be damaging, have a disproportionate impact on particular groups of employees and could have a serious impact on staff morale.

2. What about discrimination?

Might employer-funded early retirement and tapering payments for those close to retirement age be age discriminatory? There are certainly cases where it has been argued and questions of ‘justification’ and ‘proportionality’ are surely going to come into play, depending what form the final changes take.  It is understood that the government will consider the case for applying elements of the framework flexibly, for example, where it can be demonstrated that a particular option may not lead to significant cost savings, where there is an alternative approach that may lead to costs savings, or where a particular option may have an unwarranted impact on equality. However, just how much leeway there is for this remains to be seen.  

The government wants departments to begin restructuring their exit terms immediately and to produce proposals for reform by the end of 2016. Departments should consult on the proposals and follow the normal process of discussions and negotiations with trade unions and other workforce representatives, to try to seek agreement to them. The government would like the entire process to be concluded by the end of June 2017.  Should it not be possible to achieve meaningful reform within this timescale, the government will consider options for primary legislation to take forward reform.

So it is not so much a question of “if” these changes come in we need to be prepared for them, it is a question of “when” they do but I think we can count on continued strong opposition from trade unions. 

Daniel Kindell - Associate Solicitor

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