Despite all your best efforts to recruit and retain the right key executives, sometimes things just do not work out as planned and it becomes evident that it will be necessary to part company. This can be commercially sensitive and it will be in the interests of the business to ensure a swift and amicable departure.

‘Managing the departure of a senior executive carefully, and within the law, will reduce the risk of a tribunal claim, protect your business’s customers and reputation, and should ensure as little disruption as possible’, says James Edmonds, an Associate in the employment team with WBW Solicitors who looks at the main areas for employers to address when it is time to say goodbye.

First step: check the agreements

Collect the suite of documents that set out the executive’s rights and obligations on departure. These may include:

  • the contract of employment or service agreement;
  • commission or bonus agreements; and
  • corporate documents, such as a restricted share scheme agreement or a shareholders’ agreement.

If some of the arrangements were never set down in writing, please get in touch and we can advise you on how to decipher what was agreed.

Check the important terms

The agreement with the executive should include key provisions protecting your business such as confidentiality and intellectual property clauses. Check for restrictions on the executive’s actions to stop them from approaching your customers or poaching your staff after leaving your business. These will need to be verified by your solicitor, to ensure they are enforceable.

If it is a long serving executive, check that the contract been updated to keep up with changes in their role or the business environment. Even if the agreement does contain the appropriate clauses, the executive may argue that they have been released from their contractual obligations if the business breached the contract with the executive, for example by giving too little notice or if it seriously mistreats the executive. These issues can be dealt with when negotiating the exit package which is made binding through a settlement agreement.

Settlement agreements

In a settlement agreement, an employer will offer the executive benefits in exchange for the executive giving up his rights to bring a claim against the business.

Things to include in a settlement agreement could be:

  • The Executive gets to keep medical insurance or work mobile phone.
  • Provisions on social media accounts the executive had access to.
  • Confidentiality, non-disclosure or gagging clauses.
  • An agreed date for announcing the departure.
  • Good leaver/bad leaver provisions. These are provisions which incentivise an executive to remain in the business for the minimum period (good leaver), or which deter someone from leaving before the agreed date or from poor performance/misconduct.
  • If not included within the service agreement, provide for the executive to resign as a director.

There will be a number of things you will need to check when entering into a settlement agreement. We can advise on whether a settlement agreement needs to be approved by shareholders, and ensuring that the wording is suitable so as to avoid claims of negligent misstatements.

Be sure to ascertain the reasons for departure. It will influence whether you want to go down the settlement agreement route, as well as determine the executive’s entitlements.

Benefits on exit

Other than in the rare case of gross misconduct, the executive will be entitled to notice, or a payment in lieu of notice. Depending on the reason for leaving, they may also be due to receive:

  • a redundancy payment;
  • enhanced early retirement benefits;
  • bonus or commission; and
  • payments triggered by the good leaver / bad leaver provisions if they have a shareholding or share options.

If they are a member of a limited liability partnership (LLP), they may be entitled to a share in the LLP profits.

How we can help

We can help you with all aspects of document drafting, exit strategy and can support you as you negotiate an agreement to make any departure as painless as possible.  Please contact James Edmonds in the employment team on 01626 202329 or email jamesedmonds@wbw.co.uk.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.