TAOISEACH Brian Cowenhas rejected Labour claims the Minister for Finance acted "outside of the law" in the €1.1 million severance payment awarded to the former director general of State training agency Fás.

Labour's Róisín Shortallsaid of the enhanced severance package paid to Rody Molloy that "its seems that the Minister for Finance took it upon himself to give approval to the package without bringing it to Government".

She claimed Mr Cowen and his Ministers “have bluffed their way out of this over recent months”.

Speaking during Taoiseach’s Questions, Ms Shortall asked Mr Cowen if he was aware “of the fact that the Minister for Finance acted ultra vires in this matter”, that a “Government decision was required for the enhanced severance package of €1.1 million that was granted to Mr Molloy, that the package was outside of the law, and that the Taoiseach now retrospectively needs to obtain approval for that package”.

Mr Cowen said “the matter has been dealt with by the line department”. He rejected Ms Shortall’s assertion that the payment was illegal, and that it required retrospective Cabinet approval.

He added that “neither do I accept the assertion she makes that the Minister for Finance acted ultra vires”.

Earlier the Taoiseach told Fine Gael leader Enda Kennythat since 1997 there had been two other occasions when discretionary arrangements were made.

“In both cases the position vacated was that of special adviser to my predecessor. In the Central Statistics Office, the terms applicable to completion of their contracts were applied on the retirement of two former directors general.”

Mr Kenny also queried the payment to Mr Molloy. The Minister for Finance had said the payment “was in order” but “the internal memos of the assistant secretary and the department show that it was not in order”.

Mr Kenny asked if Mr Cowen had “changed the rules so that he is fully in charge of this issue”.

Mr Cowen said it was “an issue that will be carefully watched in the future to make sure we can avoid any controversy in regard to these matters”.

However, he added that they wanted to avoid a situation where if another approach was taken “one might end up not being able to achieve the objective, which was to move the people on in a way which was consistent with the overall requirements of the situation”.

Mr Cowen also reiterated that they wanted to “move the issue quickly so it would not get bogged down in legal problems”.

Ms Shortall said she understood “that the Cabinet was very keen to get Mr Molloy off the pitch as quickly as possible given the controversy he caused and the ongoing embarrassment he was causing to the Cabinet”.

“However, the fact is that the Cabinet is not above the law. It is required to adhere to the law and to guidelines which cover these matters.”

She asked what legal advice the Taoiseach had taken on the issue when the “Attorney General’s office is available round the clock to provide advice”.

She said “the Taoiseach is responsible for the fact that this was not obtained, and he needs to take action on that now”.

Mr Cowen said any “revision of guidelines would be a matter for the Minister for Finance and the public service in the first instance”.