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Public sector pay-outs: what the news reports don’t say…

Source: Public Sector Executive Sept/Oct 2013

Kerry Norval, solicitor in the Employment Group at Dundas & Wilson, examines the rules around public sector pay-outs.

Substantial pay-outs to senior BBC employees have once again raised concerns about the impact of public bodies on the public purse. In fact, the reality is very different to the pictures the media portray. Whilst exit deals are commonly used in the private sector, especially at a senior level, they are very much the exception in the public sector. However, since private sector deals are confidential, they do not tend to attract the same degree of media coverage. 

The influence of the media 

The difficulty with the media simply publishing headline figures is the failure to understand what lies behind them. There seems to be an almost automatic assumption that large pay-outs made to exiting employees are attributable to the need for speed, as well as greed. 

Yet that is not typically the case. What such stories fail to report is that in the vast majority of situations, public bodies may be contractually required to make such payments. 

For example, in a redundancy situation where an employee has a long period of service, a substantial element of the package is likely to be an enhanced redundancy payment, in addition to the employee’s notice period and outstanding holidays. If a public body failed to meet these terms it could be in breach of contract and at risk of legal challenge. 

Not only can litigation be expensive in relation to the legal costs incurred, but it is also costly in terms of management time and the potential disruption to the public body’s services and workforce more generally. 

Of course, there will be occasions when there is a need to offer an exit package outwith the standard redundancy scenario. In this situation, not only will the package include contractual payments, it will also include an element of compensation for loss of office. Such amounts can be more difficult to quantify. 

Public sector perspective 

These concerns are not unique to the public sector. Private sector employers are under similar pressures to act reasonably or face scrutiny from shareholders. In fact, as a result of recent changes to directors’ remuneration reports, listed companies now face increased levels of accountability to divulge details of termination payments. 

Where the differences lie, however, is in the additional scrutiny that public sector bodies have to face: the concern that decisions may be subject to judicial review, for example, or the danger that details of exit packages will be disclosed as a result of freedom of information (FOI) requests. 

To date the courts have made it clear that they will only interfere in a public authority’s contractual commitments in very limited circumstances. 

Whilst the nuances of judicial review differ north and south of the border, the principle remains largely the same. Unless a public body acts outwith its statutory powers, its decisions will not be overturned. 

Likewise, there are exceptions that apply when dealing with FOI requests, which can prove to be a useful tool in ensuring the circumstances surrounding an employee’s exit are kept confidential – the most important being that a public sector employer will not usually need to divulge information which relates to another individual’s personal data.

Steps to take 

So, what can a public sector organisation do to ensure that any exit deal offered is deemed acceptable? 

Ultimately, what will be regarded as reasonable will depend upon the facts and circumstances of the individual case. 

However, there are a number of factors that should be considered: the employee’s role and performance, their employment prospects going forward, what rights they may have to compensation if they were to later raise a claim, as well as the cost to the public body of defending any litigation.

 Provided an organisation keeps such factors in its contemplation - and ensures that any decision taken is rational and evidence based - any package offered should be deemed fair and proportionate. 

Whilst this may not stop the media interest, it should make any story less newsworthy.


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