The Small Business, Enterprise and Employment Act 2015 (SBEEA) made many provisions affecting companies and employers. Generally, the Act applies UK-wide, though any reference to public sector may involve different treatments in the four countries, as much public sector administration is a devolved responsibility.
Like many Acts, the SBEEA is just a provisioning tool – it only provides for things to happen in the future. When and how they happen is all dependent on secondary legislation in the form of Regulations.
The Small Business, Enterprise and Employment Act 2015 (Commencement No 3) Regulations 2015, effective 01 January 2016, commenced a power regarding public sector exit payments in the SBEEA of direct significance to public sector employers. Also in 2016, the Enterprise Act made changes to the SBEEA with the result that there are two pending issues coming to employers later this year.
Public Sector Exit Payments
The Enterprise Act received Royal Assent on 04 May 2016. As the name suggests, it is all about promoting business enterprise and economic growth. From an employment law point of view, one of the key provisions at Part 9 allows for a restriction to be placed on the monetary value of public sector exit payments. This provision was inserted into the SBEEA and allows for Regulations to be made that will ensure the total exit payments made to a person by a ‘relevant public sector’ employer does not exceed £95,000. This cap applies to the total of all exit payments from two or more relevant public sector bodies within a period of 28 calendar days.
Whilst we only have the draft implementing Regulations to look at, the following payments are subject to the £95,000 cap:
- A payment on account of dismissal by reason of redundancy
- A payment made consequently upon a voluntary exit from employment
- A payment made to a pension scheme
- A payment made in lieu of notice due under a contract of employment
- A payment made under a settlement or conciliation agreement
- A payment made to extinguish any liability to pay money under a fixed term contract
- A payment made by way of shares consequent upon a loss of employment, 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
The exit payment cap is on the back of public discontent over perceived large payments that have been made previously. So, whilst a cap may be understandable, the impact on employers could be burdensome. Employers will have to consider things like how they impose the cap, considering that a contractual termination payment for a high earner may easily exceed £95,000. As it also applies to exit payments made by a settlement agreement, will this pose an issue for an employer that wants to use this route of parting company with an employee?
Public Sector Exit Payment ‘Clawback’
The 2015 Commencement Regulations commenced the SBEEA’s powers to make Regulations to require the repayment of some or all of any qualifying exit payment in qualifying circumstances. Essentially, what this means is that, in certain circumstances, people that have been paid a public sector exit payment will be required to pay the money back if they are re-employed within 12 months. If they come back after 28 days but within 12 months, the amount to be repaid reduces and no repayment is required on a return after 12 months.
A qualifying exit payment is a payment:
- made to an employee of a prescribed public sector authority in consequence of the employee leaving employment, or
- made to a holder of a prescribed public sector office in consequence of the office holder leaving office
Circumstances are qualifying if a person that has received an exit payment becomes:
- an employee or a contractor of a prescribed public sector authority, or
- a holder of a prescribed public sector office
This issue has been the subject of a number of consultations and the Repayment of Public Sector Exit Payments Regulations were expected to come into force in April 2016, as per a December 2015 Consultation. However, another Consultation ran from 05 February to 03 May 2016 following an announcement at the 2015 Spending Review of further reforms to the way that the clawbacks will work. The Government has not yet responded to this.
It’s all about the Small Business, Enterprise and Employment Act 2015! Regarding public sector exit payments, we are actually awaiting two pieces of legislation:
- The Public Sector Exit Payment Regulations 2016, which will make provision to secure that the total amount of exit payments made to a person in respect of a relevant public sector exit does not exceed £95,000 (this is the ‘exit payment threshold’ that was inserted into the SBEEA by in the Enterprise Act 2016)
- The above clawback Repayment of Public Sector Exit Payments Regulations 2016
Given that the exit payment legislation will not come into force before 01 October 2016, it seems likely that the clawback legislation will be introduced at the same time. An interesting feature is that the devolved Governments in Wales and Northern Ireland seem to be able to vary the legislation, as public sector control is a devolved responsibility. It does not seem to even apply in Scotland so any cap or recovery will be subject to Regulations there, as per their devolved powers.
I think that we have two important Regulations to look out for that will, hopefully, be preceded by comprehensive guidance for employers