KNOWLEDGE

Senior executive severance arrangements and dismissals

Morton Fraser Partner Innes Clark
Author
Innes Clark
Partner
PUBLISHED:
31 March 2022
Audience:
category:
Blog

Over the years I have advised a very wide variety of senior executives in respect of their severance arrangements following on from the executive being dismissed or being advised that they are to be dismissed.

Senior executive severances can arise in a variety of different circumstances such as where there is a high level restructure, where there are perceived conduct or performance issues, or simply where it is the employer's perception that the executive's face doesn't fit anymore and it is time for a change. Senior executive severances can also arise where the executive has decided that the time has come to move on and opens discussions with their employer.

It is very common in circumstances where a senior executive is dismissed for the employer not to follow any sort of procedure. Often the first time that the executive will know that there is a problem is when they are called into a meeting, told that their employment is to come to an end and then escorted off the premises.

This type of situation is a very sensitive one with significant financial implications for the executive involved as well as reputational issues which can be just as, if not more, important. 

With regard to the financial side of things, much will depend on the senior executive's contract of employment. It doesn't always happen but it is very important that executives consider the possibility of termination down the line when they are in contractual negotiations in respect of any new role. This is because the length of their notice period often has a significant bearing on the amount that they are able to negotiate in the event of a dismissal.

Executive salary and benefits packages are often at such a high level that the executive is disadvantaged by the Employment Tribunal compensatory cap (£93,878 with effect from 6 April 2022) which applies in unfair dismissal cases.  With that in mind, very often the longer the notice period the better as the notice element is not subject to any cap if it is pursued before the ordinary courts.  In addition to salary there are other benefits to consider, such as share option schemes which may mean that it is important to ensure that the senior executive has "good leaver" status.  It is also often necessary to consider bonus payments, both annual bonus schemes as well as long term incentive plans.

Protecting the executive's reputation and ensuring that they are in the best possible position to move forward and obtain alternative employment elsewhere is another key factor to bear in mind.  An agreed reference and an agreed departure statement (both internal and external) which present matters in the best possible light from the senior executive's perspective can be of significant value.  Consideration should be given, on a case by case basis and bearing in mind guidance on the appropriate use of non-disclosure agreements, to including  confidentiality and non-derogatory statement clauses.

Very often a senior executive's contract will contain restrictive covenants restricting their working activities for a certain period of time  following on from the termination of their employment, for example 6 or 12 months. It is worth considering whether an attempt should be made to negotiate out of the covenants either partially or in their entirety.

Employers will also often offer executive outplacement coaching to assist the senior executive in securing alternative employment elsewhere.

Other issues which can arise include Financial Conduct Authority regulatory issues, resignation of directorships and share transfer/share valuation issues.

As indicated this is a sensitive area and it is important that advice is taken as soon as possible.  It is important to consider and discuss the appropriate strategy to adopt: is a quick clean exit more important than the possibility of maximising the financials by either threatening litigation or actually litigating?

Over the years, I have personally advised senior executives in a wide variety of circumstances including departures from most of the major banks in the UK as well as other financial institutions and a wide variety of other well known organisations. Through providing this type of advice, I have met some very interesting people and I am glad to say that a forced career move very often results in exciting new opportunities for those concerned. 

Disclaimer

The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser LLP accepts no responsibility for the content of any third party website to which this webpage refers.  Morton Fraser LLP is authorised and regulated by the Financial Conduct Authority.