When can the public-sector exit payment cap be waived?

NOTE: On 12 February 2021, the Government announced that the public-sector exit payment cap is being disapplied with immediate effect.

The £95,000 cap on exit payments in the public sector can be waived in some limited circumstances. The decision to waive the cap can be made only by:

  • a minister;
  • the full council of a local authority;
  • the London Assembly; or
  • a Fire and Rescue Authority.

The cap can be waived only with the consent of HM Treasury, or in accordance with the relevant HM Treasury Directions (unless the payment is made by a devolved Welsh authority).

Under the Directions issued by HM Treasury, it is mandatory to waive the cap where the exit payment arises as a result of TUPE, or where the payment is compensation under a settlement or conciliation agreement arising from a whistleblowing, discrimination or health and safety dismissal/detriment complaint.

The Directions also provide for a discretionary power to relax the cap, with the consent of HM Treasury, if:

  • the cap would cause undue hardship;
  • the cap would significantly inhibit workplace reform; or
  • the exit was agreed in writing before the Regulations came into force, to occur before that date, but was delayed for reasons outside the employee's control.

The government guidance on the cap includes further guidance on when the discretionary power may be used, making clear that this will apply only in exceptional circumstances. The guidance states that the authority wishing to exercise the discretionary power to waive the cap must submit a detailed business case to HM Treasury for approval. The guidance includes a pro forma for setting out the business case.