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The Academy Trust Handbook (ATH) 2026, effective from 1 October 2026, reinforces the requirements for academy trusts considering settlement agreements and other special staff severance payments. In particular, paragraphs 5.12 and 5.13 make it important for trusts to look beyond the value of a proposed payment when determining whether prior approval from the Department for Education (DfE) is required.
The £50,000 threshold is not the whole story
Under ATH 5.10, DfE approval is required before an offer is made where the non-statutory or non-contractual element of a staff severance payment is £50,000 or more. However, a payment below £50,000 is not necessarily exempt from prior approval.
ATH 5.12 requires trusts considering payments above statutory or contractual entitlements to follow DfE’s special severance guidance and HM Treasury’s Guidance on Public Sector Exit Payments: Use of Special Severance Payments. This includes assessing whether the payment is in the trust’s interests, obtaining a legal assessment of the prospects of successfully defending an employment tribunal claim, considering whether the proposed settlement is justified and ensuring the amount is below the likely tribunal award. Trusts must also retain clear evidence of their decision-making and how value for money has been established.
When is approval required regardless of value?
ATH 5.13 requires prior DfE approval where a special staff severance payment meets specified criteria, including where it is novel, contentious or repercussive. The criteria also cover exit packages of £100,000 or more that include a special severance payment, employees earning over £174,000, and settlements involving confidentiality agreements.
Crucially, section 3.4 of the HM Treasury guidance identifies examples of payments that will be considered novel, contentious or repercussive, irrespective of their value. These include:
- Settlement where the trust has a strong legal defence (part a). Where lawyers assess that the employer has more than a 50% chance of successfully defending the matter in court or at tribunal, or the department considers there is no significant risk of legal challenge.
- Confidentiality clauses (part f). Where the settlement agreement contains a confidentiality clause, subject to the applicable restrictions on such clauses.
- Termination outside formal procedures (part g). Where an employee, at any grade, is dismissed or has their contract terminated outside formal conduct, capability, retirement, redundancy or voluntary exit scheme procedures.
- Other circumstances. These include unaffordable payments, cases likely to set a precedent, high-profile or contentious settlements, payments that could be seen as rewarding failure or poor performance, and payments that do not represent value for money.
The practical consequence is significant: a relatively modest settlement may still require prior DfE approval because of the circumstances in which the employment is being terminated. In particular, trusts should not assume that a settlement below £50,000 can proceed under delegated authority simply because of its value.
What should trusts do now?
Before making a binding commitment or offering a settlement, trusts should:
- Take legal and HR advice on the circumstances of the proposed exit, the prospects of successfully defending a claim and the likely financial exposure.
- Check the approval requirements under ATH 5.10 and 5.13, including the examples in HM Treasury paragraph 3.4.
- Build in time for DfE approval. Where approval is required, it must be obtained before the payment is agreed and before the transaction occurs.
- Document the decision and value-for-money case, including the alternatives considered, supporting legal advice and the reasons for the proposed settlement.
- Escalate uncertainty early. If the classification of a proposed payment or the approval requirements are unclear, seek DfE guidance before proceeding.
The key message
The revised requirements mean that the value of a settlement is only one part of the approval assessment. Academy trusts should consider the circumstances of every proposed special staff severance payment, including whether it falls within one of HM Treasury’s examples of a novel, contentious or repercussive transaction.
Failure to obtain required prior approval risks a breach of the ATH, even where the payment is commercially justifiable and below £50,000. Early legal advice, clear documentation and timely engagement with the DfE are therefore essential.
If you have any questions in this complicated area please reach out to our academy experts.
