Recent guidance on termination payment is specific to senior managers but should extend to all employees as good practice, says Suzanne Nulty

NHS bodies making termination or severance payments to employees often need external approval.

The position for termination payments is clear, if not without practical difficulties

With applications for approval of an ex gratia payment, the guidance from a variety of sources can be confusing when trying to assess where approval is required. However, the areas of potential ambiguity relate to payments other than termination payments, particularly the settlement of proceedings.

The position for termination payments is clear, if not without practical difficulties.

Any termination payment in excess of an individual’s contractual or statutory entitlement (regardless of the amount) requires approval from the Treasury. Approval requests go through the Department of Health and primary care trusts and acute trusts are required to involve their strategic health authority before submitting a request for approval.

Some strategic health authorities have greater involvement, ensuring their remuneration committees consider the request before it is submitted to the Treasury. SHAs will receive guidance from the DH on their role and will be strongly encouraged to take a more hands-on role than some have done to date.

Usually, an individual’s financial entitlement on termination will simply comprise notice pay and pay in lieu of any accrued but untaken holidays.

In practice, an employer will consider making an ex gratia termination payment when dealing with difficult and complex circumstances or where there are actual or threatened legal proceedings.

Such cases will, inevitably, involve some difficulties for the employer: failures to address capability or misconduct issues in a timely or sufficiently robust manner; procedural weaknesses or more substantive issues that leave the employer open to litigation or reputational risk. Therefore, for an NHS body seeking approval from their SHA, the DH and Treasury, there will often be concerns about having to expose the organisation’s difficulties.

Perpetuating that uneasy feeling is the need to highlight the trust’s weaknesses in its potential defence to any threatened proceedings. The natural temptation can be to minimise these problems and emphasise why the employee is at fault. This jeopardises the chance of approval.

Even where the cost-benefit analysis suggests a payment would be justifiable, the Treasury may not give approval if, for example, the amount seems disproportionately high to the individual’s wage and/or there is another reason to question the probity of using public funds in this way. The Treasury will not approve settlements which seek to, or have the effect of, rewarding failure, dishonesty or inappropriate behaviour.

The DH is also keen not to endorse avoidance of the need to manage or discipline employees appropriately. The rationale is that these individuals, having received a “pay-off”, may move to another trust, transferring to another part of the “NHS family” the issues and costs their existing employer seeks to avoid.

The approval regime has tended to lead trusts to self-regulate more closely and objectively before seeking approval. It can also be useful in managing the expectations of employees.

Severance guidance

NHS Employers’ Guidance for Employers within the NHS on the Process for Making Severance Payments to Senior Managers identifies that the key principles to be considered by the Treasury in relation to an application for approval of an ex gratia payment, are contained in the Treasury’s Managing Public Money.

Further clarification in this area will be published to confirm that the similar guidance in the NHS finance manual also remains applicable to NHS trusts and PCTs.

Foundation trusts are not obliged to follow NHS Employers guidance or the NHS finance manual but the impact of Monitor’s approach in this area, and the overarching applicability of Managing Public Money, mean that the effect for foundations is equivalent.

Points of note

  • The recent NHS Employers guidance, while specific to senior managers, states that its application should extend to all employees as a matter of good practice.
  • Monitor imposes analogous processes on FTs; applications go via Monitor as opposed to the DH.
  • It is harder to decide whether proposed payments require Treasury approval when they relate employment matters not related to the termination of employment. Discussions with the DH suggest Treasury approval will not normally be required for settlements of live proceedings unless they involve questions of principle, lessons of wider interest, or issues that might create a precedent, raise doubts about effectiveness of systems or arise because of obscure or ambiguous central instructions. Take specific advice in such cases.
  • Although redundancy payments are not ex gratia, there are separate SHA approval requirements for larger payments and those for senior executives.