Termination payments: rules of disengagement

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.