NEWS – 13 October 2020
Public sector exit pay cap – latest
Restricting the size of exit payments in the public sector has come a step closer after draft regulations passed a vote in parliament. A reminder - the government is legislating for a cap of £95,000 on exit payments in the public sector, a duty that will be implemented through secondary legislation, although that might be delayed by a judicial review which we understand is going ahead, a challenge by the BMA arguing it is unlawful - more on that in moment. An exit pay cap for the public sector is not a new idea – objections to the payment of six-figure sums to public servants on leaving their employment have been voiced for a long time, and they are getting louder given the current climate. Essentially the government's view is that the majority of exit payments are not good value for money and they need tighter control. So let's hear more about that, and the background to this, from Jon Coley who joined me by video link:
Jon Coley: “Well, this goes back to 2015. Joe. The government at the time was looking at the size of public sector pay outs and wanted to impose a cap on those so they introduced the power for the Treasury to introduce regulations back in the Small Business Enterprise and Employment Act 2015 and that passed in 2015. It then went into, probably, the too difficult box but those regulations have now come back before Parliament and the House of Lords and have been passed and are subject to Treasury sign off. I suspect this legislation will not go forward without at least one challenge, and we know of one already. The BMA has already indicated that it is issued proceedings for judicial review, challenging the regulations on the basis that they interfere with their members existing contractual rights, their existing contractual rights to an enhanced redundancy payment which, from the coverage, the BMA are suggesting is an interference with their members human rights, their contracts of employment, being their property, their right to enjoy their existing contracts of employment, and that the government has no right to interfere with those privately agreed contracts of employment. The challenge for employers is going to be how they interact with the workforce really, because as far as the workforce are concerned, they have agreed protected contractual rights, they have agreed protected redundancy rights, and they will see those as banked and changing those is going to be very difficult, even in the face of the regulations. One of the legal challenges will be to see whether the regulations themselves override those contractual rights in any event, and it will be interesting to see how that thinking develops over time.”
If you are within scope of the regulations you will be interested in the detail of this new legislation and how it might work in practice. That detail is mapped out in the regulations of course, which like most statutory instruments, makes for pretty dull reading but the government's explanatory note is certainly an easier read so we suggest you go there instead. We have looked at both - so does anything jump out? Jon again:
Jon Coley: "One of the interesting things, Joe, actually is what's included and not included within the 95k cap. For instance, what's not included is a PILON, payment in lieu of notice, provided it doesn't exceed a quarter of the employee's annual salary - so in other words, three months - but what is included, which people had hoped may not be, is the pension strain cost. If for instance, the employer has to top-up an employee's pension pot so that they don't get an actuarially reduced actuary reduced pension when they are made redundant and that is often one of the most significant costs when you are talking about an exit package.”
Insolvency – what HR needs to know
Last week we flagged the article in Personnel Today called: "Bearers of bad news – what HR needs to know about insolvency. They say, rightly, that when the worst happens, the HR team will often play an important role and how, for many HR professionals, this will be a completely new experience. The article then goes on to provide a guide to the key features of an administration and the challenges it throws up, not least the different way that employment law applies in this situation, including TUPE. Last week we heard from Ed Goodwyn commenting on that article, and we can come back to Ed because the rise in the number of insolvencies and business failures ,described in the article unfortunately matches pretty accurately what we are seeing with our own clients across almost every sector. Ed again:
Ed Goodwyn: “Unfortunately, it's a fact of life these days with the current market that the risk of insolvency is ever increasing and HR professionals need to be alive to the steps they ought to be taking, and thinking about taking, now to be prepared if they face that very unfortunate circumstance. The first thing to note, of course, is that hopefully, if there is insolvency proceedings, there is a sale in prospect whereby some of the business or all of the business with the employees may transfer and will be sold to another business. From a practical perspective, the HR professional needs to be alive to the speed by which these transactions take place - they can take place in a matter of days. Very often, if it's an administration, the administrator, even before appointment, will be involved within the business to see to what extent it can help get the business away quickly. So it's very important for HR to understand the nature of the speed of these things, and be ready and prepared. So simple steps like making sure the HR records are all in good shape so quick and swift due diligence can be provided to any future purchaser and, in particular, looking to see to what extent there are any enhanced, or arguable enhanced, redundancy rights which will be probably front and foremost to a new employer or buyer's perspective. Another thing for HR to consider, of course, is the issue as to whether TUPE is going to apply or not. So TUPE may apply either almost in full or not at all, and it rather depends on the nature of the insolvency proceedings themselves. The first thing to say though, of course, is that the sale, if there has to be a sale, has to meet the ordinary tests under TUPE as to whether TUPE applies at all. If TUPE does apply, then one has to look to see whether it's an insolvency act by way of administration or insolvency proceedings by way of liquidation. If it's liquidation, then most of TUPE will not apply, i.e. the employees will not TUPE transfer to the buyer. The reason for this rule under TUPE is to make these sorts of sales more attractive and therefore the employment liabilities stay with the company and don't transfer. However, the HR professional needs to understand that even though that element of TUPE does not apply, there is still an obligation to inform and consult. If the insolvency proceedings are an administration, and TUPE does apply, then most of the normal rules of TUPE will apply in the normal way. There are, however, two important exceptions. Firstly, pre-transfer liabilities and the liability for that won't transfer and will be covered by the government and the National Insurance Fund up to certain limits. Secondly, the buyer will be less constrained as to how it will be able to make changes to terms conditions of employment post transfer.”
Cyber attacks – due diligence essential prior to paying ransoms
Finally, to a board-level issue that may be of interest to HR Directors, namely cyber attacks. As you may be aware, ransomware cyber-attacks are on the rise with criminals all over the world targeting companies, especially large ones, demanding huge payments. Sometimes the companies pay out, sometimes they don't, but the reason we are highlighting the issue is because if your business is unfortunate enough to be targeted you need to understand the importance of carrying out due diligence into who, precisely, might be behind the crime - more on that in a moment. First, to give you an idea of what's at stake, here is the BBC's report into last year's attack on a Norwegian aluminium producer where hackers took 22,000 computers offline at 170 different sites around the world.
Here in the UK, those businesses that pay ransoms are unlikely to face prosecution in most cases. That's a point made by David McIlwaine and Andrew Sackey in their Outlaw article which looks at the potential risk of prosecution stemming from the payment of ransoms to cyber attackers. But although the payment of ransom is not of itself illegal, there is always the possibility that the payee may have links with terrorism, and so it follows that a failure to conduct due diligence prior to paying ransoms could expose payors to the risk of potential prosecution. So how could that situation arise for companies in this country? I phoned Andrew Sackey to find out:
Andrew Sackey: “Although in this jurisdiction it is not unlawful to make a cyber-ransom payment, so to someone, for example, who has put malware on your system, it is certainly prohibited if you pay those monies over to somebody, some individual or some entity, who is either on a sanctions list or on a terrorist list or on any of the other sort of composite lists that specialist law enforcement agencies keep and the test for this is do you have reasonable grounds to suspect that that's where the money goes? Now, most people say, well, we don't know where the money is going because this cyber threat actor is entirely anonymous, that's why they're plying their trade, but the fact of the matter is that the nature of the criminal attack points to who might be perpetrating it because there are markers that say this type of malware is most often used by this type of group, this type of malware is favoured by another group. So because these databases exist, it is reasonable say law enforcement, that you have to make use of those before you make the ransom payment. So you can't merely turn a blind eye, you can't merely proceed on the basis that they haven't signed their name to the ransom request, you've got to do really quite specialist due diligence on these lists, which are constantly evolving and constantly changing, to give yourself the best comfort that you don't have reasonable grounds to suspect that your money is going to prohibited place because the sanctions for breaching that, as you can imagine, in in terms of counterterrorism and counter sanctions work, are very significant, indeed, from a criminal perspective. So there is work there that needs to be done before payments are considered."
For now from me that’s the news. Good bye.
- Link to Explanatory Memorandum to The Restriction of Public Sector Exit Payments Regulations 2020