In this article our Employment team set out factors to be considered when terminating the employment of a senior executive.
Following a termination procedure or going for the jugular
Dismissing an employee without following a fair procedure and/or for discriminatory reasons, puts you at immediate risk of claims. An alternative is for one party to instigate settlement discussions with a view to the Executive leaving the business, resigning any board directorship and relinquishing shares. It is advisable to identify the reason for the potential termination of employment as that will affect the strategy for discussions, the value of any settlement and potentially any Executive shareholding. Most commonly this reason is poor performance.
The employer should also carry out a full assessment of the Executive’s potential claims and their value to reduce exposure in negotiations, where possible. In addition to the £102,194 cap on constructive/unfair dismissal awards, the employer will be concerned to avoid the Executive claiming unlawful discrimination or detrimental treatment due to whistleblowing which could lead to an uncapped award at tribunal, as leverage in settlement discussions.
What does the contract say?
Ascertain whether the employer has the contractual power to put the Executive on garden leave for the remainder of their employment. Check the notice provisions in the contract and whether the Executive can be paid in lieu of notice. If so, are they entitled to a lump sum of notice pay only? Are there any bonus payments or long tem incentive payments from which the employee benefits as these could increase the value of any settlement considerably?
Protecting the business
- Consider the timing and approach so as to minimise damage to the business and its reputation
- Negotiate on a ‘without prejudice basis’ so that if no agreement is reached discussions about settlement cannot be disclosed in court proceedings, on which we advised in our previous blog – Settlement Agreements: Ensuring negotiations are confidential – relying on the ‘without prejudice’ rule
- Agree an announcement to be made on the Executive’s departure
- Include binding post termination obligations in the settlement agreement preventing the Executive from working for a competitor, dealing with your clients or misusing your intellectual property or confidential information.