The Treasury has issued a Direction which disapplies the Regulations which introduced a cap on public sector exit payments in November last year (see our earlier blog here). That means that the cap ceased to apply from 12 February, pending revocation of the Regulations. It also means that the exit payments of employees with termination dates between 4 November 2020 and 12 February 2021 should not have been capped.
Accompanying Guidance suggests that employees who have been affected by the cap should contact their former employers to ask them to pay them the amount they would have received had the cap not been in place. Employers are “encouraged” to pay employees “the additional sums that [they] would have paid but for the cap”.
The Guidance doesn’t address the practical difficulties of unwinding the arrangements made over the past three months where the cap was applied, or what happens if it is not possible to work out the addition sums that would have been paid but for the cap.
It does however re-iterate 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.” In the NHS, removal of the cap does not avoid the need to obtain Treasury consent for non-contractual payments.
The Guidance also states that the Treasury will be bringing forward new proposals “at pace” to tackle “unjustified” exit payments. The decision to scrap the current Regulations was made against the background of legal proceedings brought by Unison and others which challenged their legal validity. They were due to have been heard by the High Court next month.
The Direction disapplying the Regulations does not apply to exit payments made by a devolved Welsh authority.