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What’s the answer? Golden handshakes

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This week Nicholas Snowden, Senior Solicitor at Clarkslegal LLP and Helen Badger, employment law expert, Browne Jacobson present their ideas on the framework surrounding golden handshakes.



The question:
“I have been asked to look into the issue of golden handshakes in the public sector. If anyone has any experience of this, I would welcome your help.”

Nicky

The answers:
Nicholas Snowden, Senior Solicitor at Clarkslegal LLP
handshake Golden handshakes are often paid in the private sector, usually without any problem. Public sector employers must be much more careful when making termination payments to staff which are not contractually due or even when making contractual variations which may benefit a departing member of staff.

Payments made by public bodies such as local authorities and NHS Trusts are subject to the scrutiny of the Audit Commission. The Audit Commission is there to ensure that public bodies are being run properly and in accordance with their duty to provide best value for money. Non-contractual termination payments are likely to prompt the Audit Commission to start asking questions to satisfy itself that the public body concerned has been complying with its duty to achieve best value.

If the public body you work for is considering making a non-contractual payment to a departing member of staff, my advice would be to speak to the Audit Commission before you make any promises to the individual concerned. Explain to the Audit Commission the circumstances of the proposed payment and the reasons you want to make it.

Hopefully, this should enable you to find out how the Audit Commission is likely to view the proposed action. If you do not do this, if the Audit Commission suspects that the payment made was unjustified and failed to provide best value, it could make life very uncomfortable for the public body and the relevant decision-makers within it.

Helen Badger, employment law expert, Browne Jacobson
Paper Money
You are right to seek advice, as so-called “Golden Handshakes” (compensatory payments for early termination of employment) are much more heavily regulated in the public sector than in the private sector. Such payments are subject to the scrutiny of the Audit Commission, whose role it is to ensure that public organisations are being managed in a proper manner, are achieving their aims and providing best value for taxpayers’ money.

For example, there are statutory provisions relating to local government employees which restrict payments made to employees dismissed on the grounds of redundancy. There are similar provisions restricting the years that can be added to an employee’s pension in the event of early termination.

Another good example is the NHS, which is subject to guidance on provisions included in any severance agreement with an Executive Director. These include a requirement for the departing executive to notify the NHS body of any employment obtained with another NHS body, before the expiry of the notice period.

Also required is a clause empowering the NHS body to recover all or part of the termination payment, where the departing executive receives payment from another NHS employer for a period prior to the expiry of his contract.

Where confidentiality clauses are included in such severance agreements, a Department of Health guidance Direction (which has statutory authority) requires information on payments received to be available to the Audit Commission, Public Accounts Committee and to Parliament.

The overriding principle to keep in mind, then, is that public sector employers do not have the same freedom to pay departing employees compensation as would their counterparts in the private sector. Any payments to departing public sector employees should be considered with caution and advice sought from the Audit Commission.

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HRZone highly recommends that any answers are taken as a starting point for guidance only.

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Annie Hayes

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