Local Government Reorganisation – Golden handcuffs

Background: Local Government Reorganisation

The extent of prescription during Local Government Reorganisation (LGR) has varied over the years, tending to become decreasingly prescriptive as to how reorganisation occurs and measures, relating to the treatment of staff. 

Prior to 2000, reorganisation was far more prescriptive in terms of actions, redundancy payments, detriment payments, etc. This has changed with more recent rounds of reorganisation based on guidance or increasingly left for councils to act as they wish within normal statutory requirements.

Once processes begin in the current context, there will need to be greater clarity of government expectations, for:

• what it will legislate
• on what it will produce guidance.

It is extremely unlikely to legislate on golden handcuff arrangements, but it is possible that it might be inclined to produce stronger guidance than has previously existed. 

Golden handcuffs

It is envisaged that the inducement would take some form of payment (or potentially some other assistance) and would be provided at the end of the period for which the individual is needed. Their possible use has been mooted in various rounds of local government reorganisation although there is no comprehensive data on which authorities have used the concept.

For example, in reorganisation in 2008/09 the guidance from the Department of Communities and Local Government Local Government Restructuring: Guidance on Staffing Issues was strongly in favour of processes to ensure there was as much agreement and commonality of approach in affected councils in a particular reorganising region as possible. That guidance made specific reference to golden handcuffs as a possibility (see para 8.5.2 on page 32), suggesting implicitly that they were permissible, subject to consistency across affected councils. 

More recently, reorganisations have been less 'centrally' co-ordinated but still subject by necessity to some locally agreed methodologies managing the important stages and issues.

Local Government Pension Scheme (LGPS) provisions

If a council chooses to use additional payments to staff for this purpose, then under the terms of the LGPS, they are not pensionable. 

Regulation 20(2) of the LGPS Regulations 2013 covers payments that are not pensionable in the LGPS. This includes:

• 20(2)(e) any payment as an inducement not to terminate a contract of employment

Therefore, a golden handcuffs payment would fall into this category and not be pensionable in the LGPS.

General considerations

As we await further clarification on the key aspects of reorganisation, including legislative measures and government guidance, we set out some relevant considerations for any authority considering the use of 'golden handcuff' payments.

1. The extent of the risk: key people can leave at any time and for some, local government reorganisation can act as a retention factor.
2. How soon to act – and on what basis if there is no certainty about whether reorganisation will happen, how it will happen or when it will happen. Caution is required given issues over how long such payments could be justified in the absence of clarity.
3. What level of payment would be appropriate?
4. In addition to relevant internal procedures, it would be advisable to clear any such proposal with the authority’s auditor.
5. Consideration of how additional payments would be viewed by local / national press.
6. How will the appropriate 'key people' be identified and the risk associated with people who are not included in the list?
7. Are there alternatives to encourage people to stay? Commitments re future redundancy packages, should that result, should be dealt with very carefully as they risk fettering an authority’s discretion. There is no guarantee that statutory powers to make discretionary payments will remain the same as those currently in force. It may also be the case that in the meantime, the council may need to review its discretionary payments policy according to circumstances, whether that be a general financial situation or more specifically in relation to commitments made re reorganisation at a later date. As well as considering financial payments, other considerations could be providing support packages to assist job search after the end of the process, if required. 

Equal pay risks and measures

In relation to some of the above factors it is important to be aware that choosing to make payments to particular people and not to others can create equal pay issues which require attention to manage any implications and to be able to justify decisions in case such payments are challenged.

If a woman or man could show that the practice of making such a payment amounted to a prima facie case of discrimination, it would be necessary to demonstrate that the reason for the difference in pay is genuinely due to a material factor that is not the difference in sex.

An employer considering this should therefore ensure that they carry out an appropriate equality impact assessment in relation to the policy itself and in relation to each application of it. Careful and documented consideration should be given to the reasons why this action is going to be taken so that, if challenged, any payment can be justified as a proportionate means of achieving a legitimate aim. Therefore, the following questions should be considered:

As stated previously, as this round of reorganisation develops, some matters will become clearer as to how things will work or how things will be expected to work and there will be further exchange of ideas and practices among invested councils, so more information tailored to this round will become available.

Please ensure you are subscribed to the LGA’s Employment Law Advisory Bulletin for further information.