Public sector redundancy pay




Before the 2017 general election, public sector redundancy pay arrangements were the focus of intense political scrutiny. The government is proposing a series of changes which, if implemented, will make all public sector workers, including nurses, teachers, firefighters, police officers and paramedics, worse off when facing redundancy.
Existing arrangements are the product of established sector-specific collective bargaining across the public sector, but the government has said that it wants to impose generic changes on all public sector workers without exception. 



There are the following three main planks to the changes, which affect not only redundancy pay but also a wide range of other “exit payments”:



• capping “exit” payments;



• “clawing back” exit payments from people who return to work in the public sector; and




• changing the calculation formula, to cut payments to redundant workers under the various negotiated schemes across the public sector.




‘Claw-back’ of exit payments




In summary, this is a plan to require the repayment of “exit payments” made when a public sector worker leaves their job and then rejoins the public sector within 12 months, if their salary on leaving exceeded £80,000. The power to make these “claw back” regulations is already in place, in section 154 -157, Small Business Enterprise and Employment Act 2015. 



The regulations, if made, will capture returnees to a job anywhere in the public sector within 12 months, regardless of whether the new salary is lower.
The new regime, if implemented, is designed to capture payments to the leaving employee or to any third party on their behalf, (such as a personal service company), including redundancy pay, any pension top-up to enable early retirement and any payment made as part of an agreed exit settlement between the employer and the employee. Payments in lieu of notice and holiday pay are excluded.



Working as a consultant will count as re-entry into the public sector, since the law is designed to capture anyone who spends more than 50% of their time working for the public sector in a self-employed capacity, or as the employee of another person.



The amount to be repaid starts with 100%, reducing under a tapering formula based on the number of days since leaving the public sector, up to the maximum 12 months. If someone returns on a part-time basis, the repayment will be “pro-rated”, based on the difference in hours between the new and the old role. New employers are not obliged to recognise the past service of a joiner, and as public services union UNISON has pointed out, this means that anyone who is made redundant a second time (having repaid their first “exit payment”) will suffer a dramatic cut to their redundancy terms on the second redundancy. 



If someone cannot repay their “exit” payment, prospective employers are to be instructed to withdraw the job offer. There is to be a “waiver” process whereby employers will be able to ask the relevant minister for an individual exemption from the obligation to pay back on a case-by-case basis, likely to cover, for example. whistleblowing settlements.



Consultation on the regulations to implement this change ended in January 2016. The draft regulations were heavily criticised. The government has not responded to the consultation or laid finalised regulations before parliament, and it is possible that this highly political proposal may in the end, not be enacted. 


Cap on public sector exit payments




In February 2017, the government brought into force section 1, Enterprise Act 2016, which empowers the government to make regulations (not yet in force) to impose an absolute cap of £95,000 on all public sector termination payments (not just redundancy payments), including in the civil service.
The cap, if implemented, will override complex negotiated agreements reached between employers and public sector unions.



Originally planned for October 2016, the introduction of the cap appears to have been put on hold as a result of the unexpected May 2017 general election, followed by a judicial review challenge by the Public and Commercial Services Union (PCS v Minister for the Cabinet Office [2017] EWHC 1787). Under draft regulations, the Public Sector Exit Payment Regulations 2016, the £95,000 cap, if implemented, would include:



• all compensation for compulsory and voluntary redundancy;



• early retirement payments;



• payments in lieu of notice;



• employer payments to a pension scheme to secure early receipt of a pension;
and


• compensation for early termination of fixed-term contracts, termination payments in shares and “any other payment made as a consequence of, in relation to, or conditional upon loss of employment, whether under a contract of employment or otherwise”. 




Under the draft regulations, payments “made in respect of incapacity or death as a result of accident, injury or illness” are to be excluded, as are payments “made in compliance with an order of any court or tribunal”.
In the draft text, settlements, including those agreed through Acas EC, are included, but subject to a “waiver” process, entitling employers to ask the relevant minister for an individual or group exemption.



If implemented, all public sector employers are to be subject to the cap, except a small list of “public financial corporations” including Royal Bank of Scotland and the BBC.



The cap, if introduced, will mostly affect high earners. However, public services union UNISON has warned that despite government promises, it will also impact on moderate earners with long service, such as nurses, social workers, paramedics and librarians, especially if they were previously entitled to take early retirement as an alternative to being made redundant.



Public sector pay is a devolved matter for the governments of Wales and Scotland. The “claw back” and the cap, as well as other proposed changes to public sector redundancy pay, will not apply in these countries.