The Government has recently consulted on draft regulations to clawback exit payments made to high-earning public sector employees who receive exit payments and seek to return to the public sector within a relatively short period.
They follow a number of high profile cases in local government and the NHS concerning individuals who received very large payments only to return to the public sector almost immediately leading to criticism of ‘revolving doors’. This legislation is due to come into force on 1 April 2016.
The Employment Lawyers Association (ELA) and others raised concerns in 2014 when a consultation paper on this issue was released. To government’s credit, it has taken on board many of those concerns. Originally it had proposed that the regulations would apply if the affected employee returned to the ‘same sector’ within a prescribed period. The draft regulations now remove this requirement. All that is now required is for the affected employee to return to any part of the public sector. However this may have unintended consequences (see below).
Unnecessarily complicated
Despite revisions, the draft regulations remain unnecessarily complicated and likely to have unintended consequences. Anyone seeking to calculate or challenge a repayment would need to refer to at least six other pieces of legislation to determine the scope and meaning of the rules. This is not user-friendly!
Further, not all of the terms used in the draft regulations have definitions. This is unsatisfactory as those affected by the draft regulations, and ultimately Employment Tribunals, will have to try to fathom out what Parliament intended.
The draft regulations do not appear to cover all of the government’s objectives. For example, the consultation paper accompanying the draft regulations, states they will apply to those with a salary £80,000 or above. ‘Tapering’ provisions will apply for those who earn between £80,000 and £100,000 (the higher you earn, the greater percentage of the exit payment would be repayable). Those who earn over £100,000 will be subject to a 100% repayment, should they be re-employed in the public sector within 12 months. However, the draft regulations do not appear to contain provisions reflecting this.
As currently drafted the regulations are likely to make redundancy and restructure exercises more protracted and complex and may well prompt ‘satellite litigation’.
Unintended consequences
While the new rules will achieve costs savings across the board there is speculation that the repayment rules may disproportionately impact specific areas of the public sector where skills are less ‘transferable’. For example, Unison has highlighted that the majority of NHS staff train for specific roles and ‘develop skill sets that are just not required outside of the healthcare sector’.
More generally, these regulations may serve to drive talented employees out of the public sector or at least keep them out of the public sector for an extended period post-exit. A diversion of talent to the private sector and a loss of skills and investment may be an unfortunate unintended consequence of the legislation.
It could also result in fewer employees at the top end of the pay scale volunteering to exit resulting in a greater proportion of compulsory exits at that level (with additional management time having to be spent to manage such exercises).
It is ELA’s view that some extra time spent now by Government ironing out all of the wrinkles is much more likely to deliver effective legislation.
Paul McFarlane is a partner in the Employment, Pensions and Immigration Team at Weightmans LLP in London. He chaired the Employment Lawyer’s Association sub-committee which responded to the Government consultation on the draft repayment regulations.
