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Cap on public sector exit payments
[ch 11: pages 440-441]There is to be an overall absolute cap of £95,000 on all public sector termination payments (not just redundancy payments).
The power to make regulations to bring the cap into law was enacted on 1 February 2017, bringing into force section 41, Enterprise Act 2016. The cap will override complex negotiated agreements reached between employers and public sector unions.
The Public and Commercial Services Union (PCS) is applying to challenge this change to the law via judicial review on the ground that the decision:
• fails to comply with consultation provisions in section 1(3) of the Superannuation Act 1972 and infringes the human right to engage in collective bargaining (Article 11 – the right to freedom of association – see Chapter 5, page 146);
• infringes public law by imposing changes without proper consultation; and
• breaches the public sector equality duty (see Chapter 7, page 280).
Under draft Public Sector Exit Payment Regulations 2016, the £95,000 cap is to 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;
• 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”.
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” (draft regulation 3(2)).
Settlements, including those agreed through Acas EC, are currently included in the £95,000 cap, but there is to be a “waiver” process, entitling employers to ask the relevant government minister for an individual or group exemption, under guidance that is yet to be prepared.
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 was originally scheduled to come into effect on or after 1 October 2016 but this timetable has slipped. Subject to the 2017 election result, it is now anticipated that final regulations will come into force sometime after spring 2017.
The cap, if introduced, will mostly affect high earners, but 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.
More cuts to contractual public sector redundancy pay planned
In 2016, the government announced that it expects all public sector compensation schemes in England to be reformed on the basis of “consistent” principles. The announcement impacts on existing redundancy arrangements in the civil service, NHS, teachers, police, firefighters and local government. As public services union UNISON states, “this initiative tears up collective agreements and negotiated settlements, many of which are still in the process of being agreed directly with government departments, at a time when the flexibility required by employers to negotiate redundancies with recognised trade unions could not be more acute”.
Government plans (now dependent on the election result) include:
• a cap on the maximum tariff for calculating redundancy payments of three weeks’ pay per year of service;
• a cap on the maximum number of months’ salary to be used to calculate redundancy payments at 15 months, no matter how long the individual has worked (the cap may be slightly higher for some voluntary redundancies);
• a cap on the maximum salary for calculating redundancy payments, regardless of actual salary. This is currently envisaged to be £80,000, to align with the NHS salary cap of £80,000 which was introduced from April 2015;
• tapering any lump sum compensation to employees, the closer they get to normal pension age or to the target retirement age of the public sector pension scheme to which they belong (or could belong);
• limiting employers’ pension top-up payments for employees offered early retirement instead of redundancy, or removing access to pension top-up payments; and
• increasing the minimum age at which employer-funded pension top-up is available.
The proposals target most exit payments, not only redundancy situations. Service-related death or injury or ill-health retirement are excluded.
These proposals, if implemented as proposed, will cut redundancy compensation for most public sector employees. For example, most NHS redundancy payments are currently calculated on the basis of one month’s pay for each year worked, and many public sector schemes have an overall cap of two years’ pay.
If changes cannot be negotiated through collective bargaining on a department-by-department basis, the government threatens to impose them by law. The government originally stated that it wants all necessary changes made by the end of June 2017. This is a devolved matter, so these changes affect only the public sector in England – not Wales or Scotland.
“Tories slam door on exit payments”, Labour Research magazine, April 2017 (www.lrdpublications.org.uk/publications.php?pub=LR&iss=1866&id=idm5168168)