Recovery of Public Sector Exit Payments

It is common for individuals benefiting from generous public sector severance arrangements to find new employment elsewhere in the public sector meaning the severance payment becomes a windfall. The government has recognised this represents ‘poor value for money’ where large severance payments have been made. New measures will therefore be introduced to allow public sector exit payments to be clawed back where the individual has been re-employed in the public sector within a set period. Jodie Sinclair from Bevan Brittan explains.

Key features of the scheme

Although there is already some regulation of high-value exit payments for senior managers in the NHS and local government, the new arrangements set out in the draft Repayment of Public Sector Exit Payments Regulations 2015 ('the Regulations') go further and cover a wide range of payments, including the following:

• Redundancy payments
• Payments on voluntary departure
• Any payment to reduce or eliminate an actuarial reduction to a pension on early retirement
• Payments in respect of outstanding contractual entitlements, such as payments in lieu of accrued but untaken annual leave
• Compensation payable under a contractual term
• Payment in lieu of notice
• Payment in the form of shares or share options

It is envisaged that the Regulations will apply to payments made under Settlement Agreements. Repayment is made to the organisation from which the employee has exited, and both office-holders and employees will be covered. The Regulations bite where the exit payee returns to employment in the same 'sub-sector' of the public sector within 12 months of their exit. These sub-sectors are wide and include health, education and the civil service.

The Regulations will only affect individuals who have earned £100,000 or more in the 12 months prior to the termination of their employment. The amount of the severance payment to be repaid will be reduced pro rata, depending on when the individual returns to public sector employment. There is also provision for lower repayments if there is a drop in remuneration on re-employment, either because the new role is less well paid or is part-time.

The Regulations contain a carve-out for payments which equate to normal contractual entitlements, such as payments in lieu of untaken holiday, notice pay or bonus payments. There is also a waiver available, so that there cannot be any claw back of money paid in compensation of 'employer fault'. In other words, the claw back provisions are not intended to deter settlement arrangements where there would otherwise be a risk of successful litigation against the employer.

Implementing the scheme

The mechanics of implementing the repayment provisions are set out in detail of Part 5 of the Regulations and all parties will be subject to various requirements. This includes a responsibility on the outgoing employer to keep a record of any exit payments and to seek repayment where appropriate. The incoming employer will also be responsible for ensuring that any amount due to be repaid has been repaid to the outgoing employer before allowing the individual to begin new employment.

Next steps

The Regulations are timetabled to come into force no later than 1 April 2016. The long lead-in time is intended to allow public sector employers time to amend any compensation schemes so they comply with the Regulations. The government has stated that the Regulations are intended to be a starting point for public sector organisations, and they will not preclude organisations from going further than the statutory framework.

It is important that employers make use of the lead-in time to ensure they have reviewed any policies, procedures, contractual documentation and/or compensation schemes which may be affected and put in place the necessary amendments or new documentation. If you require any further information or assistance with preparing for implementation, please get in touch with me, or your usual Bevan Brittan contact.

Jodie Sinclair
Partner
0370 194 7890
jodie.sinclair@bevanbrittan.com