The departure of a senior figure in any business can cause disruption, discontent and dissatisfaction if not properly managed.  However, given that high-profile departures are rarely completely unexpected, careful planning can help avoid a turbulent exit period, reduce the risk of an employment tribunal claim and protect the employees and clients of the business. Here, Lucy Flynn explains how best to manage departures within a business.

Reason for Termination

How to manage the departure of a senior employee will depend, to a large extent, on the reason for departure.  Retirement will usually be more straightforward to deal with than a dismissal for gross misconduct.  However, the reason for termination will not only inform the process that an employer should adopt, but it will also impact the contractual entitlements of the employee and feed into the employer’s strategy for dealing with any risk of claims in the employment tribunal.

The Contract

Once the reason for termination has been established, the next step is to understand the obligations and rights of the employee and the employer upon termination.    If there is a written service agreement or contract of employment, the employer should check:

• Any contractual restrictions on termination
• Any contractual obligations to follow specific procedures on termination
• What notice must be given to terminate
• Whether there is a right to pay in lieu of notice or place on garden leave

Absent any written terms and conditions of employment, employers should seek legal advice on both their statutory obligations and any implied terms regarding giving notice to terminate the employment of a senior employee.

It is important to remember that some rights and obligations may fall outside of the contract of employment, such as within a shareholders agreement, a share purchase agreement or under statute if the employee was a also a director.  It is essential to understand all of the employees’ rights on termination before beginning any process and advice should be sought in the event of uncertainty.

The Process

Depending on the reason for termination, it is not always practicable from a business and commercial perspective to follow set procedures for performance management, disciplinary or dismissal of a senior executive.

Furthermore, in the case of resignations and dismissal with notice, and to protect the interests of the business, it is often preferable – and sometimes essential – to remove the employee from the business and pay in lieu of notice or place them on garden leave.

These factors all play into:

• An increase to the risk of claims for unfair dismissal, wrongful dismissal, breach of contract and discrimination
• An increase in the potential for disruption to workforce morale, business continuity and reputational damage
• Uncertainty regarding post-termination activities of the employee

It is for these reasons that an employer will often seek to reach an agreement with a high-profile employee regarding the terms of a departure.

Settlement Agreements

A negotiated settlement agreement between a departing employee and the employer:

• settles any contractual or statutory claims that the employee may have against the company in exchange for benefits – usually a financial package
• can bring certainty to the post-termination activities and obligations of the employee in terms of confidentiality and competition
• can set parameters regarding announcement of the departure, references and wider messaging
• can deal with resignation from office and shareholding

When designing a settlement package, consideration should be given to:

• the reason for termination
• contractual entitlements such as notice pay, bonus, commission and benefits
• statutory entitlements such as redundancy pay
• ex-gratia compensation for loss of employment
• reinforcement of restrictive covenants
• confidentiality and non-disclosure provisions
• the tax treatment of any settlement payment
• legal costs of the employer and the employee

Maintaining professionalism throughout the process is essential.  Putting together a settlement package from the outset and conveying the offer of the package in a way which shows respect and reflects the value brought by the employee, can help engender goodwill and smooth negotiations.

Wider Considerations

Equally important to managing a smooth exit of a senior figure is ensuring a smooth transition for the business, its workforce and its customer and client base during and after the departure.

Planning for departures is essential in terms of:

• succession – who is going to perform the role of the departing employee?
• dissatisfaction – how is the workforce going to react?
• disruption – what are the implications on service levels?
• reputation – will the exit impact the standing of the business?

Individuals leaving on good terms are much more likely to speak positively about their previous employer and well-managed exits can engender future positive relationships.

If you are dealing with an employment related issue or would like guidance from our specialist Employment Team, don’t hesitate to contact us via email at beyondemploymentteam@beyondcorporate.co.uk