New Compensation Regulations issued

On November 8 the DCLG issued the eagerly awaited regulations governing the compensation that authorities can award to an employee whose contract ends on the grounds of redundancy or efficiency. The regulations, which are available at come into force on 29 November 2006 but are retrospective to 1st October 2006. The main provisions of the final regulations are unchanged from the draft, details of which can be found in LGE Advisory Bulletin 515. Briefly the main provisions:

  • remove the facility to make a one off lump sum payment of up to 66 weeks pay based on a formula and replace this with a provision to make a payment ofup to 104 weeks pay
  • continue to allow authorities to base compensation payments on an actual week's pay
  • remove the facility for employers to make an award of Compensatory Added Years (CAY), although employers can still use the augmentation provisions under regulation 52 of the Local Government Pension Regulations

However, there are transitional provisions which will allow an employer to:

  • continue to use the 2000 Compensation Regulations to pay a lump sum (of up to 66 weeks) or make awards of CAY in cases where the employee commenced employment before 1st October 2006 and the date of termination will be before 1stApril 2007.
  • increase any lump sum award already notified under the 66 weeks provision before 29th November 2006 to up to 104 weeks (inclusive of any redundancy payment) where the date of termination was on or after 1st October and before 29th November 2006.

There is also protection for employees whose termination date falls before the 29th November from the retrospective implementation of the new regulations.

The overall effect is explained below.

Employee's termination date between 1st October and 5th November 2006 inclusive

The retrospective protection ensures that employees who are dismissed between these dates are not in a worse position than they would have been if the Regulations had not applied until 6 November 2006. This means that the new Regulations cannot be used to reduce the compensation that an individual would have received under the authority’s policy that would have applied up to the point that it was amended to comply with the new Regulations. Thus, an individual dismissed between these dates must be awarded compensation under the authority's latest policy under the 2000 Compensation Regulations where the award would be higher than under the authority's policy under the new Compensation Regulations.

Employee's termination date between 6th November and 28th November 2006 inclusive

Although there is no specific protection as set out above which applies to this group of staff in the legislation, authorities will see from the accompanying letter from the DCLG that the Department recommends that the same principle should be applied.

In both the above cases

For any employee dismissed between 1st October and 28th November, where an authority has paid or promised to pay a lump sum under the 2000 Compensation Regulations to this group of staff it can make a further payment under the new Compensation Regulations giving a total of up to 104 weeks' pay (including the redundancy payment). This provision will be particularly relevant to authorities that would have paid employees a higher compensation payment under their new policy, but were unable to do so due to the late implementation of the Regulations.

Employees terminated on or after 29th November 2006 up to 31st March 2007 inclusive who were employed before 1st October 2006

In the case of this group of staff, an authority can use either the provisions in the 2000 or the 2006 Compensation Regulations. This will be particularly relevant for those authorities that have advised employees of their compensation entitlement based on the 2000 Compensation Regulations. This provision will mean that the implementation of the new Regulations does not prevent an authority from honouring such offers for any such employee dismissed up to 31st March 2007.

It will also be relevant to those authorities that may not have decided on their policy in respect of the new Regulations. In theory the authority could continue to apply their existing policy up to 31st March 2007 (but only in respect of staff employed before 1st October). However, authorities will obviously be aware that their policy under the 2000 Compensation Regulations may have age-based criteria and that, depending on the circumstances (e.g. age profile of those being made redundant, justifiability of provisions, etc), this could leave the authority vulnerable to a claim of age discrimination.

Timing of new policy

Authorities will be aware that any change to their existing policy under the 2000 Compensation Regulations cannot be implemented until one month has elapsed from the publication of the new policy. The same rule applies to any change to the policy the authority makes under the 2006 Compensation Regulations. However, the first policy an authority makes under the 2006 Compensation Regulations does not constitute a change to a policy published under those Regulations i.e. the policy will be an inaugural policy under the 2006 Compensation Regulations, not a change to a policy made under those Regulations. Thus, the first policy made under the 2006 Compensation Regulations can be implemented from the date the policy is agreed; the one month rule will not apply to the first policy statement. However, the 2006 Compensation Regulations do not provide a period of grace in which to produce a policy under those Regulations so authorities will need to be expedient in getting a policy in place (as employees employed after 30th September will not be covered by the 2000 Regulations). Policies under the 2000 Compensation Regulations will lapse at midnight on 31st March 2007, at the latest, when the ability to continue to make awards under the 2000 Compensation Regulations finally expires in respect of employees employed before 1st October 2006.