The recent developments relating to special severance payments made to senior executive employees, or those in leadership roles, in academy trusts may have a significant impact on a Trust’s decision to raise settlement discussions where termination of employment is on the cards.
Special Severance Payments – The Background
The 2021 Academy Trust Handbook, effective from 1st September 2021, places a ‘cap’ on exit payments made to employees of academy trusts. You may recall that, on 4th November 2020, a cap of £95,000 was introduced in relation to public sector exit payments. This was then scrapped some 4 months later, on 19th March 2021 (despite being a concept introduced in 2015 and consulted upon extensively). Now with these new amendments to the Handbook, it would appear that the cap is back, albeit in a different guise.
By way of explanation, a ‘special severance payment’ is a payment to an employee, officeholder, worker, contractor or another, outside of normal statutory or contractual requirements when leaving employment in public service whether they resign, are dismissed or reach an agreed termination of contract.
The Academy Trust Handbook requirements in relation to Special Severance Payments
The Handbook requires that ESFA approval is now needed for a special severance payment where:
- the proposed special staff severance payment is for £50,000 (gross, before income tax or other deductions) or more
- a special staff severance payment for any value is proposed and the trust is under a Financial Notice to Improve (FNtI) or a Notice to Improve (NtI)
- an exit package which includes a special severance payment is at, or above, £100,000 (gross)
- the employee earns over £150,000 (gross). For this purpose, earnings will not include employer pension contributions
What’s new in the 2021 Academy Trust Handbook?
The significant limitations which have been introduced this year, which are italicised above, require ESFA consent before a settlement can be entered into, are:
- where a proposed exit package includes a special severance payment which is £100,000 or more; or
- where a special severance payment of any amount is proposed in relation to an employee who earns more that £150,000.
What’s the impact of the new rules?
These new changes will certainly impact settlement negotiations for CEOs and other executive post-holders, as well as potentially also highly paid academy leaders. It is not difficult to see that an exit package for a headteacher, for example, could quite easily fall within the third limb above i.e. the exit package, which includes a special severance payment, is £100,000 or more. With the current STPCD headteacher pay range between £47,000 and £125,000 per year, and the average headteacher salary in 2020/21 being £73,500, and with most headteachers contractually entitled to 3, but up to, 4 months’ notice of termination, it is entirely foreseeable that a global settlement package could quite easily exceed £100,000 once contractual entitlements have been taken into account.
These new rules will mean that, going forward, Trusts will need to consider the following when entering into settlement discussions:
- in cases where the exit package, which contains a special severance payment, is £100,000 or more:
• the amount of the special severance payment may need to take account of whether the parties wish to go through the process of seeking ESFA consent;
• the amount of the special severance payment may need to be renegotiated where ESFA consent is sought but not given.
- in all cases where an individual earns more than £150,000, regardless of the amount of the special severance payment, there must be engagement with the ESFA to obtain consent.
The requirement to seek consent in these situations could incur a delay in the settlement negotiations as a settlement cannot be completed where a special severance payment is proposed before ESFA consent is obtained. Trusts will need to ensure, where possible, that plenty of time is factored into the timetable for exit discussions to allow for consent to be applied for and obtained.
It is worth noting that the Handbook has not changed in relation to the requirement to seek ESFA approval where the special staff severance payment is £50,000 or more (i.e. the first limb) and Trusts are still required to apply the same level of scrutiny to a payment under £50,000 as a payment which is £50,000 or more. In all cases where ESFA approval is required, the Trust need to have completed a business case and taken appropriate legal/HR advice.
Our dedicated Schools HR Team of lawyers can assist with all matters relating to termination of employment including in relation to settlement discussions and preparing and negotiating Settlement Agreements, support with a business case for settlement and ESFA consent where required. Contact us today: email@example.com