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Recovery of public sector exit payments

Source: Public Sector Executive Oct/Nov 2014

Paul McFarlane of the Employment Lawyers Association says the government has created confusion and set itself an impossible task with its proposals to claw back public sector managers’ exit payments.

In the foreword to its consultation paper, ‘Recovery of public sector exit payments’, the government stated: “It is entirely unacceptable that highly paid public sector workers should be able to receive a generous redundancy package and then shortly return to work in the same part of the public sector. Across five million public sector workers, the number of instances of this is occurring is relatively small. However, it remains unfair and a poor use of public money.”

Therefore the government proposes to implement legislation in the Small Business, Enterprise and Employment Bill to ‘claw back’ exit payments from high-earning public sector workers, if they return to a job in the same part of the public sector within 12 months. At first blush this would seem to be uncontroversial. However, these proposals, as drafted, have the potential to give rise to significant uncertainty, arguments and ultimately unnecessary litigation.

When the Employment Lawyers Association (ELA) examined them in detail, we found that the proposals failed to distinguish between the different circumstances in which departures may take place, without the ‘claw back’ provisions being activated. Nor do they adequately define terms such as ‘same sector’, which is bound to lead to uncertainty. As it stands, the legislation would require extensive clear guidance on how it is to be interpreted to avoid litigation. It is not only the drafting of the legislation that concerned us. We have grave concerns about the legal and practical effects such legislation may have. From a practical point of view, it seems that a senior official would be less inclined to enter into any agreement that would penalise them for taking up another post within 12 months. This may affect an organisation’s ability to re-organise its workforce and potentially avoid the time and expense of litigation.

From a legal perspective, there is the risk that these proposals would conflict with various rights, entitlements and so on that affected workers may have – for example, statutory and contractual rights, compulsory redundancy rights, voluntary exit agreements and settlement agreements, to name but a few. In the case of settlement agreements, the terms of which are usually confidential, it is unclear how a new employer would be permitted to request disclosure of relevant information to ensure they fulfilled their obligations.

Severance payments are typically made up of a number of elements: redundancy payments, voluntary exit payments, compensation payment, ex-gratia payments, payments in  lieu of notice and payments representing the value of a fixed term contract. Some of these payments are statutory, some contractual. Is the government saying that these proposals will trump employees’ existing rights; that is, enabling employers to retrospectively renege on employees’ rights?

Retrospective changes to existing legal rights are highly unusual in English law. They would need to be clearly stated (which they are not) to be lawful. Given the current lack of clarity regarding these proposals we think it is questionable whether entire exit payments could be recouped lawfully.

There are also likely to be arguments between employer and worker regarding what description(s) are given to each element of any settlement package – as this will have implications for whether the package, or elements of it, would be subject to the claw back proposals.

ELA foresaw some unintended discriminatory consequences too. For example, a certain age group or gender group may be subject to compulsory redundancy and in other sectors another age group or gender may benefit from more generous enhanced redundancy packages.

It seems that in seeking to prevent an apparent wrong, government has given itself an almost impossible task. As things stand, these proposals put themselves in conflict with a whole range of existing rights, which is likely to give rise to significant uncertainty, arguments and ultimately unnecessary litigation.

About the author

Paul McFarlane, an employment partner at Weightmans LLP, was part of a working party set up by the ELA to look in detail at the legal implications of these proposals and to respond to a government consultation paper.

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