Government caps public sector payoffs – implications for settlement agreements

redmans-blog-newsIn a consultation response published this week, the Government has stated that it will look to cap public sector payoffs at £95,000.

In the Government’s consultation document “Reforms to public sector exit payments” the Treasury stated that it would put an end to “six-figure payments” upon termination of employment, whether for redundancy or otherwise. The consultation document did, however, state that there would be opportunity for a different maximum payment to be applied in the case of voluntary exit packages which are not treated as redundancies or in other (unspecified) exceptional circumstances.

Members of the judiciary cannot be made redundant but there are occasions when compensation can be paid – for example, if offices are abolished. However, the amount of the payoff cannot exceed a lump sum equivalent to their annual salary or accrued pension, whichever is lower. The consultation proposed a mandatory retirement notice period for all judges; under the new proposals judges would have to give notice of three, six or twelve months (with the exact period being at the retiring judge’s discretion).

The Government received 350 responses to its proposals, which it says will save the Treasury £250 million per annum. It accepted that many of the responses to the consultation were “opposed to reform”.

Chris Hadrill, a specialist employment solicitor at Redmans, commented on the news: “This announcement by the Government is destined to affect settlement agreements for public-sector employees in situations where the employee is being made compulsorily redundant, although it appears that it may not affect the terms of settlement agreements in voluntary redundancy situations. We will have to wait and see what any legislation implemented states but it is possible that, should these measure be implemented, it may lead to a raft of new Employment Tribunal claims – for example, claims for age discrimination or indirect discrimination – or applications for judicial review.”