The Academy Trust Handbook 2026 introduces important changes to the rules academy trusts must follow when considering staff severance payments and settlement agreements. The new Handbook takes effect on 1 October 2026.
These changes affect more than the HR team. Trustees, accounting officers, trust leaders and finance teams will all need to understand when a payment can be considered, when Department for Education approval is needed and what records must be kept.
A special staff severance payment is a payment made to an employee when they leave that goes beyond what they are entitled to receive under their contract or by law.
For example, the rules may apply where a settlement agreement includes an additional compensation payment. They may also apply to other non-contractual payments or benefits connected with the employee’s departure.
The important point is that trusts should look at each part of the proposed exit package. A payment does not fall outside the rules simply because the overall amount is relatively low.
The 2026 Handbook introduces a clearer test based on the trust’s prospects of successfully defending an employment tribunal claim.
If the legal assessment shows that the trust has a greater than 50% chance of losing the case, a settlement payment may be justified, particularly where the cost of defending the case is likely to be high.
Where the legal assessment shows that the trust has at least a 50% chance of successfully defending the case, the Handbook says that a settlement should not be offered. This means trusts will need clear legal advice before deciding whether to begin settlement discussions.
A settlement should not be proposed simply because it may be quicker, easier or cheaper than completing an internal process or defending a claim.
The revised wording makes clear that payments above statutory or contractual entitlements should be exceptional. Settlement agreements remain available, but they should not be treated as a routine way of managing difficult employment situations.
Before approaching an employee, the trust should be able to explain why the proposed payment is appropriate, how it represents value for money and whether prior approval is required.
The trust must obtain prior approval from the Department for Education in certain cases. The triggers include:
A payment may be novel, contentious or repercussive because of its circumstances, even where it is below £50,000. Trusts must therefore consider both the value of the payment and the reason for, and circumstances of, the proposed exit.
Particular care is needed where an employee is leaving by agreement without the trust completing a formal conduct, capability, redundancy, retirement or voluntary exit process. Depending on the circumstances, this may fall within the examples of a novel, contentious or repercussive payment and may require prior DfE approval.
Other cases may also require approval because they are sensitive, likely to attract attention or involve a senior employee. Trusts should complete this assessment before making any offer, including an informal or verbal offer.
Where a special severance payment is involved, a confidentiality clause is treated as novel, contentious or repercussive. The trust must obtain DfE approval before using the clause.
Confidentiality wording should not simply be included as a standard term without first checking whether the approval requirement applies.
The £50,000 threshold is not an automatic exemption. A payment below that amount may still require DfE approval if it is novel, contentious or repercussive.
The trust should apply the same careful value-for-money review to lower-value payments and retain a clear business case explaining the decision.
The trust must keep a clear record of how the proposed payment was considered and approved. The record should include:
This creates an audit trail showing that the trust considered the use of public money properly and followed the required process.
Compliance with the Academy Trust Handbook is a condition of an academy trust’s funding agreement. The accounting officer has personal responsibility for assuring the board that the trust is complying with the Handbook and must complete the annual statement on regularity, propriety and compliance.
A non-compliant payment may therefore create financial, governance, audit and regulatory risks. Trusts should not agree terms first and seek approval afterwards.
Before 1 October 2026, academy trusts should:
The new rules make it more important to obtain advice early, before settlement discussions begin or an offer is made.
Legal Connect can support academy trusts by:
If your trust is considering a settlement agreement or reviewing its procedures before 1 October 2026, speak to Legal Connect for practical education-focused advice.