We are testing a new beta website for gov.scot go to new site

Settlement Agreements, Severance, Early Retirement and Redundancy Terms

SETTLEMENT AGREEMENTS, SEVERANCE, EARLY RETIREMENT AND REDUNDANCY TERMS

Contents:

Scope

Key Points

Background

Settlement Agreements

Voluntary Resignation

Business Cases for Settlement Agreements and Voluntary Resignation

Compensation Schemes Provided by SG Sponsored Bodies

Employment Law

Annex 1: Overview of Process and Supporting Guidance

Scope

1. This section gives guidance on considerations to be taken into account in relation to settlement agreements and compensation for severance, early retirement or redundancy.  The guidance is aimed primarily at the constituent parts of the Scottish Administration (i.e. the core Scottish Government (SG), the Crown Office and Procurator Fiscal Service, SG Executive Agencies and non-ministerial departments) and bodies sponsored by the SG.  However, other organisations to which the Scottish Public Finance Manual (SPFM) is directly applicable should ensure compliance with any relevant provisions and follow procedures consistent with the guidance.

Key Points

2. In considering terms for settlement agreements, severance, early retirement or redundancy packages public bodies should ensure that issues of regularity, propriety and value for money are fully taken into account. An overview of the process and supporting guidance can be found at Annex 1.

3. Any proposal by constituent parts of the Scottish Administration (including SG Executive Agencies and non-ministerial departments) or bodies sponsored by the SG to offer a financial consideration to secure the voluntary resignation of an employee outwith any existing (and approved) scheme must be approved by the SG Head of HR and relevant SG Finance Business Partner (or equivalent) before any offer is made, whether orally or in writingMinisterial views must also be obtained as and when appropriate, including in relation to any potentially high profile cases.

4. Before offering or entering into any settlement agreement, any constituent part of the Scottish Administration (including SG Executive Agencies and non-ministerial departments) or body sponsored by the SG must consult its relevant Sponsor Team or SG lead contact, copying it to the SG Sponsor Director and SG Head of HR (as SG coordinator).  The response from the SG will be in writing via the relevant Sponsor Team or SG contact. Any questions relating to the terms or value for money of any proposed agreement will be directed to the relevant Accountable Officer for that public body.  Ministerial views must also be obtained as and when appropriate, including in relation to any potentially high profile casesThe body is also required to notify the Sponsor Team or SG lead contact and SG Sponsor Director and SG Head of HR once the settlement agreement is finalised; and to provide, where applicable, the associated costs of the settlement agreement.

5. The SG will be entitled to use the fact that a settlement agreement has been entered into to collate and provide information to the Scottish Parliament on the number of settlement agreements and the costs of special payments across the Scottish Administration. Bodies should ensure that the terms of any settlement agreements allow for this.

6. The benefit structure and terms of compensation schemes for severance, early retirement or redundancy provided by SG sponsored bodies - or separately by any constituent parts of the Scottish Administration - should be set by reference to the arrangements in place within the core SG and set out in the Civil Service Compensation Scheme - as amended or replaced periodically.

7. A SG sponsored body must obtain prior approval from the SG for a new severance, early retirement or redundancy scheme or changes to a previously approved scheme.  Approval lasts for the duration of the scheme.  In arriving at a decision on approval the SG will consider comparability to SG equivalent schemes and to the overarching Civil Service Compensation Scheme rules currently in force, along with an assessment of the regularity, propriety and value for money offered by the proposals.

8. Constituent parts of the Scottish Administration (including SG Executive Agencies and non-ministerial departments) or bodies sponsored by the SG must report on the use of settlement agreements and compensation for severance, early retirement or redundancy to comply with the specific requirements that exist for annual accounts disclosure (remuneration and relating to exit costs) in the form and to the standard (audited) for annual accounts.

Background

9. In considering terms for settlement agreements, severance, early retirement or redundancy packages - whether compulsory or voluntary - public bodies to which the SPFM is directly applicable should ensure that issues of legal and regulatory compliance, propriety and value for money are fully taken into account, alongside employee relations issues. Specifically:

  • public funds must not be used wastefully or to underwrite inequitable or over-generous conditions of service, including severance;
  • notice of termination of appointments should not be delayed in order to generate compensation payments in lieu of notice;
  • where appropriate, ex-gratia severance or redundancy packages should be based on the arrangements set out within relevant extant terms and conditions of employment. In particular, prior consideration should be given to the availability of pension and compensation benefits within these conditions;
  • special payments should be transparent and negotiated in a way which  avoids conflicts of interest;
  • offers of subsequent employment or consultancy work should be exceptional and only made where they represent value for money; and
  • any undertakings about confidentiality should leave transactions open to proper public scrutiny.

Settlement Agreements

10. The term settlement agreement in this guidance refers to any binding agreement between an employer and an employee to settle an employment dispute. Where settlement agreements are entered into they normally relate to the termination of employment but they can also be used to settle disputes during employment which may not result in the individual leaving the organisation. This guidance relates to all settlement agreements regardless of whether the individual remains with or leaves the organisation and regardless of whether or not the employee has commenced a process of litigation against the employer.

Voluntary Resignation

11. Severance, Early Retirement, Redundancy are all defined within the current Section 11 of the Civil Service Management Code.  Compensation is not normally payable when someone resigns voluntarily outwith any existing (and approved) scheme.  Any proposal by constituent parts of the Scottish Administration (including SG Executive Agencies and non-ministerial departments), bodies sponsored by the SG, or other public bodies for whom the SPFM guidance is applicable to offer a financial consideration to secure the voluntary resignation of an employee in such circumstances must be approved by the relevant SG Finance Business Partner (or equivalent) and SG Head of HR before any offer is made, whether orally or in writing. Ministerial views must also be obtained as and when appropriate, including in relation to any potentially high profile cases.

Business Cases for Settlement Agreements and Voluntary Resignation

12. Any business case presented for consideration should include;

  • an explanation of the circumstances of the case, including the legal assessment of the risk of litigation and likely outcome;
  • confirmation that the relevant management procedures have been followed;
  • an assessment of the value for money offered by the proposal, including a breakdown of each of the constituent parts of the proposal and any associated contractual entitlements that may be relevant;
  • any non-financial considerations, e.g. where it is desirable to end a person's employment but dismissal is not warranted.

13. Compensation should only be offered on a value for money basis with issues of propriety and regularity fully examined.  There may be limited situations where bodies may consider it desirable, for wider reasons, to take a case to formal proceedings even if an offer and acceptance of compensation would cost less. An example Business Case and supporting guidance is provided as part of Annex 1.

Compensation Schemes Provided by SG Sponsored Bodies

14. The benefit structure and terms of compensation schemes for severance, early retirement or redundancy provided by SG sponsored bodies - or separately by any constituent parts of the Scottish Administration - should be broadly similar to the arrangements in place within the core SG and set out in the Civil Service Compensation Scheme - as amended or replaced periodically. A sponsored body must obtain prior approval from the SG for a new scheme or changes to a previously approved scheme. Approval lasts for the duration of the scheme.  The business case presented to the SG should include:

  • the rationale for introducing / changing the scheme;
  • mitigating action already taken or planned to avoid the need for headcount reductions e.g. recruitment freeze, redeployment, reductions in working hours;
  • the terms available under the relevant compensation / pension scheme and the rationale for offering any terms other than the contractual minimum;
  • the estimated annual costs and savings of the new / revised scheme over the payback period;
  • details of how, by whom and over what timescale the costs of the scheme will be funded; and
  • the impact that the restructuring / headcount reduction will have on the paybill.

15. In arriving at a decision on approval the SG will consider comparability to SG equivalent schemes and to the overarching Civil Service Compensation Scheme rules currently in force, along with an assessment of the regularity, propriety and value for money offered by the proposals. The SG's consideration of such schemes - coordinated by the sponsoring unit - must include consultation with:

  • the Finance Pay Policy Team;
  • the relevant Finance Business Partner (or equivalent);
  • the Public Bodies Unit;
  • Head of HR; and
  • the Scottish Public Pensions Agency.

16. It should be assumed that the SG would not be prepared to approve any scheme that involved retention payments designed to encourage key staff to delay their departures.

Employment Law

17. Nothing in this guidance overrides the requirements of extant employment law. In particular, public bodies should have in place robust and transparent Human Resources policies. While employment law applies to employees and not to office holders such as NDPB board members, its principles do offer helpful guidance in dealing with all relevant cases and the same issues apply when assessing value for money in the wider public context. Practical guidance on the application of employment law is provided on the Business Gateway website.

18. In putting in place arrangements for voluntary exit schemes for severance, early retirement or redundancy and in reviewing employees' terms and conditions generally, bodies to which the SPFM is directly applicable should, as well as ensuring compliance with employment law, consider the interaction of any new proposals with existing contractual terms and the need to ensure flexibility in employment arrangements such that periodic changes to scheme rules can be accommodated.

Back to top

Page Published / Updated: June 2014