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Your reason for terminating the employment and the approach you adopt will invariably need to take into account a combination of business related, employment, tax, corporate governance and company law issues. If you rush into a snap decision or fail to plan the executive will have more to complain about and the termination may quickly become disputed and acrimonious leading to increased costs and prolonged negotiations.
Handled correctly, the dismissal of an executive or director, is more likely to proceed smoothly with amicable relations being retained so that any negotiations about the severance package and the terms of the settlement agreement are more easily and constructively completed.
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Our advice on the timing and how to proceed will reflect your conclusions about the level of disruption to your business that may be caused by the executive’s dismissal.
If you judge there is a commercial benefit in the agreement being swiftly and amicably concluded, this may mean your offer of settlement will perhaps have to more generous than just basing your offer on the executive’s contractual rights and possible employment claims. Equally, you will not want to reward mistakes or failures so a balance will have to be struck.
The reason for the dismissal
Identifying the correct reason for the dismissal is essential because this influences the dismissal steps to take and the value of any settlement offer, if one is to be made.
An allegation of gross misconduct will be handled quite differently compared to a business restructuring or concerns about the executive’s work performance or where there is a clash of personalities.
The severance package
Our advice can include the value of the severance package to offer, taking into account the claims the executive may have under his contract of employment or service agreement, and for unfair dismissal or discrimination. The value and terms relating to all fringe benefits including company car, share options, bonuses, and pension entitlements will all need to be factored into the offer. The enforceability and value of any guaranteed termination payment, for example under a golden parachute clause, can also be assessed.
If the executive is also a shareholder, how the shares are to be treated will need to be considered, including any good or bad leaver provisions. The tax treatment of the various elements of the severance package will be explained and we can work with your tax advisers to resolve any issues or complications.
When and how to dismiss
In discussion with you, we can recommend how the dismissal should be handled, taking into account the terms of the contract or service agreement. In most cases this will be an immediate summary termination with a payment in lieu of notice, especially if there is a valid PILON clause. In cases justifying summary dismissal, termination without notice or pay in lieu may be justified. Our advice will ensure that any restrictive covenants remain enforceable, where required.
Whether you can make phased payments under the PILON clause can be examined as this is an excellent way of requiring the executive to mitigate his or her loss.
Public sector employers
You will need to be assured that the termination of employment is a proper exercise of statutory power. If not, any settlement agreement may prove to be void. Likewise, government is in the process of introducing legislation to regulate the value of public sector exist payments with the power of claw back in certain circumstances.
Protecting your business interests
From the outset and throughout the dismissal process we will make sure our advice looks after your business interests including your confidential information, customer or client connections and your organisation’s external reputation.
Removal as a director
Terminating the employment of a director does not automatically affect his or her position as a director of the company. Where this becomes an issue, we can provide step-by-step guidance on how to remove the director from office. Invariably any dispute will be resolved as part of the overall negotiated settlement agreement terms.